Thanks for joining us for the latest episode of your favourite Weekly Rand Review!

The final week of April was a thin one in terms of economic data…

…and with South Africa celebrating Freedom Day last Thursday and Workers Day today, many local traders were away from their stations since last Wednesday’s market closed.

The eagerly-awaited meeting between Scopa and former Eskom CEO Andre De Ruyter was also scheduled in the week, as Saffers hoped to find out the identities of the ministers that De Ruyter alleged were involved in corruption at the state's power utility.

Meanwhile, global markets were also fairly quiet, but fresh macroeconomic data from the US provided a mixed bag of results…

…including increased personal consumption levels and resilient employment, which pumped the brakes on recession fears (for the moment).

No time to waste. Let’s get into the details.

Key Moments (24-28 Apr 2023)

A light week of data, but here’s what made the headlines.

• Producer Price Relief - Statistics SA published its latest results in the week showing that PPI slowed notably in March, bringing some comfort after consumer inflation surprised to the upside for a second consecutive month.
• Scopa Summon Gordhan - In the ongoing rigmarole surrounding the allegations of corruption at Eskom, the Public Enterprises Minister, Pravin Gordhan, has been summoned to appear in front of Scopa in a new plot twist.
• US Economic Growth Slows - Preliminary GDP results in the US showed that the world’s leading economy slowed more than expected in the first quarter; however, the Fed seems undeterred and remains likely to increase rates again next week.

After finishing in the red last time out, the local unit got started last week at R18.12/$ but fell in early trade as the greenback advanced at the start of a week, where, trading could be thinner, and market conditions more volatile owing to the upcoming public holidays.

The Rand rose above R18.20/$ before lunchtime on Monday but made back the ground in the afternoon before suffering another couple of setbacks on Tuesday.

First was President Cyril Ramaphosa’s announcement that he was considering withdrawing the country from the International Criminal Court (ICC), citing that it was largely because of the manner in which the ICC has been seen to be dealing with the matter surrounding Russian President Vladimir Putin, who is expected to land in South Africa later this year.

This is not a sensible move...but clearly showing the alignment of the ANC ever closer to their Russian comrades and their agenda. Dangerous times ahead...

The second setback came as a result of the composite leading business cycle indicator, which fell by 0.7% month-on-month in February, slipping further from the 0.2% fall a month earlier.

In response to the business cycle indicator, SARB chipped in, mentioning that in an attempt to circumvent downtime caused by loadshedding, businesses are being forced into using expensive alternatives such as solar power and generators.

They went on to add that they envisage that the power cuts will raise inflation by 1.1% in 2023, and could be made worse by supply chain disruptions, particularly in the food industry.

As a result, the Rand suffered, falling to R18.40/$ by Tuesday evening.

The local unit gained some ground overnight, showing up just below R18.30, with producer price inflation figures set to be released later in the day.

As it turned out, PPI figures for March showed a notable deceleration in producer costs, which ultimately could ease some pressure on wider inflation across the country.

Stats SA results revealed that PPI dropped for a second consecutive month to 10.6% year-on-year in March, significantly down from 12.2% in February.

Meanwhile, on Wednesday afternoon, the widely-followed meeting between Scopa and former Eskom CEO Andre De Ruyter got underway, and after almost four hours of cross-examination, the final outcome (for now) was rather anticlimactic.

Despite being pressured to provide answers relating to the allegations he made, De Ruyter was reticent and loath to divulge the identities of the ministers in question…

…saying that doing so could pose a security risk to himself and might defeat the ends of justice by disrupting ongoing investigations.

In one way, who can blame him after being poisoned in his own office at Eskom?

Clearly, there are those who are afraid of his exposing Eskom's corruption, and they are willing to do pretty much anything to make sure it doesn't happen.

According to his own account of these matters, De Ruyter mentioned that the alleged officials he mentioned were made known to both Pravin Gordhan and National Security Advisor Dr. Sydney Mufamadi and that the committee should approach the respective individuals for that information.

Not the outcome Saffers were hoping to hear!

Nevertheless, Scopa now plans to invite Pravin Gordhan, Dr. Sydney Mufamadi, the HAWKS, SIU, and the SAPS to get more information on the allegations made by Mr. De Ruyter.

No official date has been set yet for the above-mentioned parties to meet with Scopa, but clearly, we’re still some way away from getting to the bottom of this issue.

While past issues at Eskom are still dragging on, current developments took a new turn in the week, with the electricity minister floating a new plan to the executive committee aimed at alleviating loadshedding over the next six months.

The plan involves using emergency diesel generators, addressing critical issues at the most problematic power stations, and exempting certain regions of the country from power cuts…

…while over the longer term, the intention is to extend the life of coal power stations and to slow down the decommissioning.

Is that actually a new plan?

Or just portraying an old plan as fresh?

Using diesel-run open-cycle gas turbines to supplement generation and cut maintenance is something the power utility has been doing for years - with very little success!

By the looks of it, very little can be done to provide instant relief, and loadshedding continues to look like it will only improve when private generation and developments at Koeberg and Kusile are completed (hopefully) next year.

In spite of criticism, the “plan” secured backing from the party and its committees and is now going through the motions to be set into action.

Needless to say, we won’t be holding our breath on this one!

Then looking abroad, in the US gross domestic product rose at an annual rate of 1.1% in Q1, according to preliminary figures, down from 2.6% in Q4 of last year.

An acceleration in consumer spending was offset by businesses cutting back on inventory investment due to expectations of weaker demand this year amid higher borrowing costs…

…while the labour market remains tight, with initial claims for unemployment benefits reducing by 16,000 for the month.

Despite tightened credit conditions and increased recession risks owing to aggressive rate increases, the Fed is still expected to hike one last time in the current cycle, and many are predicting another 25 basis points, though half a percent is certainly not off the table just yet.

As a result, the greenback received some support in the evening trading session, which pushed the Rand to R18.45/$ briefly before settling in the R18.30s heading into the public holiday.

Before we wrap up the week’s activities, let’s take a quick peek at some events elsewhere:

• More than 130,000 British civil servants have embarked on strikes and protest action across the country in a long-running dispute over pay, job conditions, and the cost of living crisis. Employees from as many as 132 government departments were reported to have walked out after the General Secretary of the Public and Commercial Services Union stated that its members had been given the worst pay rise of all key sectors in the country.
• According to a preliminary release published by Eurostat, the Eurozone eked out a 0.1% growth in the first quarter of 2023 despite the bloc's major contributor to GDP, Germany, flat-lining over the period. Italy and Spain picked up the baton, posting 0.5% growth, respectively, while France also ticked upward by 0.2%. Even though the zone’s economy has been stagnating for almost a year now, its success in staving off a severe downturn has surprised many, including central banks’ representatives, who at this time last year were strongly predicting a severe recession.

On Friday, the local unit opened at R18.33/$ and weakened early against a stronger dollar before taking back some ground, edging below R18.30/$ in after hours trading…

…well off where it had started the week.

And that was the wrap!

The Week Ahead (1-5 May 2023)

As we head into the belly of Q2, here’s what we’ll be keeping a watchful eye on over the next week:

• SA - ABSA Manufacturing PMI (Apr), S&P Global PMI (Apr)
• EU/UK - EU Core Inflation Rate YoY Flash (Apr), EU Unemployment Rate (Mar), ECB Interest Rate Decision, Retail Sales YoY (Mar)
• US - ISM Manufacturing PMI (Apr), ISM Services PMI (Apr), Fed Interest Rate Decision, Unemployment Rate (Apr)

Another shortened trading week is incoming, with a bank holiday due on Monday; however, the remainder of the week will be jam-packed with a slew of central bank policy decisions.

All eyes will be on the US Fed, who are expected to hike rates once more this week, and in doing so, may force the hand of the SARB to follow suit after last week’s local inflation disappointment.

The local unit is expected to continue to encounter severe headwinds in the upcoming weeks, which will keep economists and investors very busy trying to decide how these will affect the course of the Rand…

…but thankfully, we have our forecasting models on hand to guide us through these tricky times as they give us a picture of the where the underlying sentiment is likely to take the Rand and other markets.

Until we meet again, stay safe, and have a great week!

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To your success~

James Paynter

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