Welcome back to the latest instalment of your favourite Weekly Rand Review!

Can you believe it - March is here already...where has the time gone?

And Q1 has already been a challenging period for the Rand, its backers, and the local economy, all of which have had to endure blow after blow since the turn of the calendar.

Local unit investors welcomed a thin week of economic data releases after consecutive weeks of losses which would allow them to recalibrate their plans as they head into the final stretch of the quarter.

The outlook for global interest rates continues to dictate market direction as onlookers guess, and then second guess, the US Feds' intentions to temper inflation…

…while back home, political turmoil, being greylisted, and a deepening energy crisis all weigh on a recovery for the local unit for the foreseeable future.

Slow and steady, that’s the best way to describe last week.

Here’s what happened:

Key Moments (27 Feb - 3 Mar 2023)

These were some of the major headlines over the last five days:

• Tables Turn On De Ruyter - Following his explosive interview two weeks ago, the ANC has now threatened to file criminal charges against the former CEO of Eskom if he refuses to formally report his allegations of corruption at the battling power utility.
• Manufacturing PMI Drops - Despite some improvement in January, the local manufacturing PMI fell sharply in February, breaching below the 50-point neutral mark for the first time since September 2022.
• Chinese Manufacturing Up - Activity in the world's second-largest economy expanded by its fastest pace in six months in February as the removal of tough pandemic restrictions continued to improve customer demand and employment.

After a horror end to the previous week, where we saw the local unit flirt with R18.50/$ following the country’s greylisting, last week was a crucial one for the local economy.

The Rand opened trade on Monday flat on its previous close at R18.43/$ and traded sideways for the day with no major economic data releases expected.

On Tuesday, the local unit momentarily breached R18.50/$ in the morning trading session but strengthened to test below R18.30 after data showed that SA’s unemployment rate dropped for the fourth consecutive quarter to 32.7% in Q4 of 2022, from 32.9% in the preceding quarter.

But, as always, the question is: how much are these figures accurately reported?

I think most know that the reality is that this number is closer to 50%...

However, other data also showed that the country recorded a trade deficit of R23.05 billion in January, down from a surplus of R4.99 billion a month earlier…

…and a budget deficit of R88.8 billion from a deficit of R65.93 billion 12 months earlier!

The improved unemployment rate makes for encouraging reading for Saffers, but it may be short-lived as record power cuts continue to discourage investment and strangle economic growth.

According to the SARB, the electricity crisis is costing the local economy in the region of R899 million per day, which has forced the central bank to slash its growth forecasts for the economy to 0.3% in 2023.

The local manufacturing sector was the latest to show signs of deterioration in business conditions, in the factory sector in particular, as the PMI dropped from 53.0 in January to 48.8 in February.

While February’s manufacturing statistics provided negative news, export sales grew to their best level in a year; however, this means that producers who supply only to the domestic market likely endured a difficult month, with more to come.

And all of it points back to the craziness at Eishkom!

As South Africa still digests Andre De Ruyter’s jaw-dropping interview from the previous week, the ANC responded in unison last week by going on the offensive to get to the bottom of the accusations, which implied that Cabinet ministers were involved in the alleged corruption (surprise, surprise?).

The governing party has now threatened to file criminal charges against De Ruyter if he refuses to report his allegations, backed with evidence, to law enforcement within seven days.

Meanwhile, Public Enterprises Minister Pravin Gordhan provided his insights which sparked even more debate by confirming that De Ruyter did indeed speak to him about corruption at the power utility but never presented any evidence.

Gordhan went on to state that the former CEO made allusions about certain individuals but that he could not arbitrarily point to someone and say that person is either corrupt or involved in corruption.

So the action taken was to do absolutely nothing?!

And where are the Hawks amidst all this, when an attempt has been made on De Ruyter's life?

While Saffers remain divided over the accuracy of the allegations, perhaps naming names now makes sense rather than leaving the situation up in the air.

Bottomline, the whole situation left the Rand a bit jittery, but stronger...

The drama surrounding the former CEO and Eskom did not deter the President from forging ahead with a cabinet reshuffle as he makes way for the appointment of the hotly debated minister of electricity.

In the latest move, Finance Minister Enoch Godongwana was sworn in as a member of Parliament following the resignation of Mike Basopu in recent weeks.

Speculation has been rife over the identity of the minister-to-be, with the head of investment and infrastructure, Kgosientso Ramokgopa, emerging as the man tipped by many to take up the role.

Is this SA’s knight in shining armour that will save the country’s electricity provider from a complete collapse?

Or is it just another pointless waste of time and taxpayer’s money?

The fact is, less government involvement is the solution, not more!

What is certain is that the frustrations over the situation are bubbling to a boil, with a national shutdown emerging as a very real possibility after trade union SAFTU confirmed that it will join the EFF in protest action later in the month.

On Wednesday, the local unit and most emerging currencies enjoyed a much-needed day in the sun after Chinese manufacturing data showed forecast-busting results, reinforcing that the world’s number two economy was well and truly on the bounce back.

China remains South Africa’s largest trade partner; therefore, positive news about the health of its economy tends to have a knock-on effect on South African asset prices.

But along with that relationship comes trouble in the west, as the United States is now considering action against South Africa for the military operations with Russia & China, and the continued political and ideological alignment with these two countries in so many ways...

...the net result being a bill that has been introduced into Congress, calling for a complete review by US Administration into the South Africa-USA relationship.

With the amount of trade that is going on between SA and the US, this could have a significant effect on the economy!

While the mood on trading floors lightened on Thursday, the prospect of rising interest rates in the US continued to cast a shadow over progress by riskier currencies like the Rand.

Another strong labour report last week in the US emphasized that point, with initial claims for unemployment benefits dropping by 2000 for the week to the 25th of February despite a number of high-profile layoffs in the tech sector.

While this may seem strange, one may argue that the unemployment claims’ figures do not represent the entire workforce accurately since higher-paid workers may not qualify for such benefits…

…something which is often not often taken into consideration when making monetary tightening decisions!

The PCE price index was the final major data release for the week and showed a rise to 0.6% in February, which was the biggest monthly increase since mid-2022…

…the key takeaway being that rather than disinflation, the report shows inflation at a level which will pique the concerns of the Fed about inflation remaining sticky (or reversing).

And as we’ve come to know, their default response to such situations is to tighten further and stick with higher rates for longer…

…which doesn’t bode well for the US economy or the local unit’s recovery.

By Thursday evening, the Rand had found some steady ground in the low R18.20/$ region and was tracking for a small but welcomed win for the week...

And then the week was basically complete.

Friday too was quiet, and the Rand gently slid to ending the week sub R18.20, and that was the wrap!

The Week Ahead (6-10 Mar 2023)

New month, new data points. Here’s what we’ll be keeping an eye on over the next five days:

• SA: GDP Growth Rate YoY (Q4), Business Confidence (Q1), Current Account (Q4)
• US: Fed Chair Powell Testimony, Wholesale Inventories MoM (Jan), Unemployment Rate (Feb), Non Farm Payrolls (Feb)
• EU/UK: EU GDP Growth Rate YoY 3rd Est (Q4), UK GDP YoY (JJan)

Two months down in 2023, and the debate still remains as to whether inflation readings warrant interest rates remaining higher, causing plenty of angst over the outlook for the local economy, debt servicing and company profits.

Relentless monetary tightening will eventually drag on both the economy and earnings - a headwind that will, inevitably, add to an already jittery market.

A tricky time for investors and those with Rand exposures. A time to make decisions with your head, not your heart!

Stay safe. See you next week!

Please take our Rand forecasting service for a test-drive!

This will give you access to the same charts we are to give us and our clients the likely direction of the Rand - ahead of time, enabling you to make educated and informed decision.

Simply use the link below to get access now. No charge. No card. All yours to trial for 14 days.

If you have any questions or feedback, please leave them below.

To your success~

James Paynter