Another week, another chapter etched into the chronicles of the global economy…

...and what a chapter it was!

A relatively thin but crucial week of economic data releases, headlined by the US CPI results, made for a major market movement...

...as Rand bulls finally re-emerged from hibernation after a prolonged cold front on trading grounds that saw the dollar soar to record heights in recent months.

The global economic marketplace was set alight this week, welcoming “good news” to reignite hopes of a pivot in the US Feds' ongoing monetary policies. But is it too early to break out the bubbly?

Let’s find out. To the review!

Key Moments (7-11 Nov 2022)

Here’s what made the headlines:

• SA Production Up - The crucial mining and manufacturing sectors produced increased monthly output despite intense rolling blackouts. Can we avert recession after a major contraction in Q2?
• US Inflation - The latest CPI results from the US could provide some much-needed relief to consumers as prices start showing some slowdown.
• UK GDP Slumps - A recession seems evermore guaranteed for the Brits as official figures showed the economy having shrunk between July and September.
• Mid-term Mayhem - After almost a week, the control of the US House and Senate still remains up in the air as final vote counts experience major delays.

We hoisted the mainsail on local waters, where the Rand was hoping for a snowball effect following the gains made the week before.

The local unit opened the trading week a smidge below R18/$ and continued to enjoy a relatively good day, dropping to R17.71/$ by the day’s end. Tuesday marked the release of the major local economic data release for the week in the form of mining and manufacturing production results – a key indicator of the state of the local economy.

In a surprising reading, South African manufacturing data for September increased by a healthy 2.9% YoY, with motor vehicle parts and accessories leading the upturn, while food and beverages also contributed a credible 1.9% points to the overall gains.

There were some other less than desirable mining figures but overall these gains will no doubt go a long way in contributing to the Q3 GDP release next month...

...but we’ll have to wait and see if it’s enough for the local economy to dodge a recession.

Realistically, if first world economies are heading into one, SA does not have much choice but to prepare for the knock-on effect.

Ahead of the Mid-term Election deadline in the US, the Rand was trading sideways after opening at R17.73/$ on Tuesday morning.

The elections come amid economic volatility for the US, with rampant inflation and prices, geopolitical tensions simmering, and elevated recession predictions plaguing the world’s number one economy. Americans are feeling the pain of rising interest rates as Federal Reserve data in the week showed that consumers borrowed $25 billion in September.

After almost a full week since the conclusion of the elections, it seems that the final results may still be some weeks away owing to a number of factors, including run-off elections, ballot-casting glitches, ballot-counting issues and inordinate delays in cities of key swing states (strangely, in the very same places as 2 years ago...)

Markets remained fairly stable through midweek as investors prepared for Thursday’s CPI results – which made for positive reading!

The US Consumer Price Index (CPI) showed that the annual pace of inflation had slowed to an expectation beating 7.7% in October from 8.2% a month earlier.

The month-on-month slowdown in inflation may provide a bit of relief to households and businesses - but as food and housing costs continue to rise, it’s safe to say that they are not out of the wood yet…

Nevertheless, the positive inflation results acted as the spark to ignite the market with hopes that the worst was now in the rearview mirror.

Most currencies gobbled up ground on the greenback, and the local unit followed suit, rallying strongly in Thursday's afternoon trading session, showing up at R17.40/$...

...its strongest level in nearly two months!

The gains were not only experienced on the forex markets, though…

...stocks also recorded a banner day as the S&P 500 rose 5.5%, the Dow Jones Industrial Average climbed 3.7%, and the Nasdaq Composite topped the charts with a 7.4% spike.

All eyes will now be cast on the US Feds' next monetary meeting, which we will all be scrutinizing for signs of a potential pivot in policy. Is it still too early to expect, though?

Only time will tell.

And then, in other news:

• The UK economy’s recent difficulties intensified yet again in the week as official figures showed the economy shrank by 0.2% between July and September. The soaring prices of energy and goods have created major hardships for households, and the cutting back in consumer spending is clearly starting to drag on the already battered economy.
  
  The Band of England did little to comfort concerns, announcing that it expects the recession to be the longest recorded in its history, adding that unemployment will almost double during 2023. It’s going to be a tough road ahead for the Brits, and difficult decisions will need to be made by Chancellor Hunt in order to restore confidence and economic stability.



• Amid war, food insecurities, and growing rivalries, the G20 leaders are set for a high-stakes summit scheduled to take place on the 15th and 16th of November. The headline act of the summit will be the first meeting of US President Joe Biden and Chinese Leader Xi Jinping since the former was elected to office. Relations between the world’s top two economies have been tested in recent times... and the showdown between the leaders is expected to address the longstanding concerns over the Taiwan Strait and human rights violations.

  The authoritarian leader's pandemic policy was enforced yet again in the week as an alleged spike in infections spurred another lockdown in Guangzhou, a major manufacturing hub in China. Most of the country’s borders still remain closed, and international trade continues to remain a guessing game with ever-changing quarantine regulations disrupting supply.

• Crypto bulls had a week from hell as the volatile digital asset market was rocked by the collapse of FTX, one of the world’s largest cryptocurrency exchanges. Concerns around the exchange’s financial health led to $6 billion in withdrawals from FTX in just 72 hours.

  Market leader Bitcoin plummeted on Wednesday by a massive 10%, hitting its lowest level in two years, while the second-largest asset Ethereum shed 3.5%. The pair continued to wilt and were down by 21% and 25%, respectively, by the close of trade on Friday.

The Rand carried its momentum overnight, trading at R17.34/$ on Friday morning, and proceeded to close the week in the mid-R17.20s.

What a difference a single week can make!

But can it continue?

Come back next week as we’ll find out.

The Week Ahead (14-18 Nov 2022)

With a jam-packed week of economic data releases and key events scheduled, here’s what we’ll be focusing on:

• UK - Unemployment Rate (SEP), Inflation Rate YoY, UK Fiscal Statement
• EU - GDP Growth Rate QoQ (Q3), Core Inflation Rate YoY Final (OCT)
• US - PPI MoM (OCT), Retail Sales MoM (OCT)
• SA - Retail Sales MoM (SEP)

As we head to the halfway point of Q4, glimmers of hope are beginning to emerge after months of gloom. The overall outlook for the Rand has suddenly improved immensely, and while welcomed, it just proves how volatile markets still are at present…

...and are likely to remain for some time to come.

For now, it’s best to remain cautious and not get carried away with a brief bounce.

As for us? We'll be relying on our Elliot-Wave-based forecasts to provide some direction. Please join us as we watch this one play out...!

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