So onward the Rand train runs!
The Dollar's decline from last week has continued and the Rand has really taken advantage of it, strengthening to pre-pandemic levels.
The irrationality of markets is really on full display, as the US is really starting to show signs of coming out the other side of the crisis, while locally the situation continues in full flow.
Yet it is the Dollar weakening and the Rand strengthening...
Crazy, right?
But just another lesson for not looking to logic in the markets, which will have you floundering time and time again.
The reality is that this is an unwinding of a intense period of Rand-negative sentiment (see Jan-Apr 2020) and also an unwinding of Dollar-positive sentiment the past year or so.
But if we think that currency markets are volatile, take a look at Cryptocurrency - as Bitcoin hit USD 65000, and Ethereum USD 2500… incredible times we live in.
Let's get into the full review.
Before we get into the week, here were the biggest headlines from the 5 days:
- Retail Sales - huge boosts for both SA and the US as retail sales far exceeded expectations prompting belief that the economic trouble was over...
- Eskom Funding - now turning to sale of assets, the power company seems to be making some headway
- Oil Glut - the tables are now turning as life returns to normal and demand increases...what next for Oil?
- Stocks Mania - as stocks, in particular US ones, continue to soar higher, one has to ask what next and when will it end?
- Coinbase IPO - and this for a bit of a different feature, as $COIN the first ever publicly trading cryptocurrency exchange went public...what does the future hold for this industry?
As for the Rand, we saw the market open around R14.57, having been fairly range-bound against the Dollar the week before.
We have been awaiting a breakout, some market reaction to trigger the underlying sentiment...
...and this week had the potential to do just that.
The major talking point was the Retail Sales figures locally, and they came in at 2.3%, well above the -1.8% consensus. This was the first positive reading in 10 months as we hopefully leave strict lockdown measures, which subdued economic growth.
Then the US one-upped that, with their figures:
As consumers spent their stimulus checks and bars and restaurants began to reopen from restrictions, this boom also broke away above the expected 6.1%.
This really prompted belief that things were getting back to normal...
...when really it is just governments removing restrictions (which only caused harm in the first place) and allowing business to work again, not that the so-called 'pandemic' is any different to what it was 3 months ago.
But enough on that, because in the markets we saw the reaction to this news, as stocks jumped higher. The DOW soared another 300 points, also on the back of reports that showed first-time filings for unemployment insurance dropped to the lowest level since March 2020. The Labor Department reported 576,000 new jobless claims for the week ended April 10. Economists polled by Dow Jones expected a total of 710,000.
Perhaps one would think that investors are justified in doing this, based on the good news...
...but the reality is that investors are bordering on euphoria on stocks going higher.
This bubble is going to pop, and we are here to warn you as to that. Because it is going to affect everyone - from United States, to South Africa, to Australia and everywhere in between.
The US Economy flows down to every economy, and the current trends cannot continue.
Case in point…there is a New Jersey, USA Deli that has done $35,000 odd in sales over the last 2 years. It was valued at $113 Million as of February 8th, 2021, publicly traded as HWIN.
During a time when the Deli was closed in 2020, the stock rose almost 3 times its value. For no reason. None at all.
These kinds of events are KEY to noting that we ARE in a bubble...who can deny it?
So tread carefully, invest wisely, don't put all your eggs in one basket, and don't follow the herd that is rushing toward a precipice…
...when everyone believes the market CANNOT go down, that is when it will turn, as there is no one left to push the market higher.
To get back to the Rand, we saw a slight weakening to R14.68 on Tuesday, but the rest of the week was a different story!
The market turned on its head, moving more than 50c stronger against the Dollar by Thursday where we saw it hit the best level in 15 months, at R14.15/$:
Who would have thought this would be the case, when 1 year ago to the day, we were trading just shy of R19?
Such is the ebb and flow of the markets...
And then in other news:
- Although the Oil glut is quickly diminishing due to increased demand as countries reopen and return to normal business operations, it looks as if we are going to be seeing a breather on the fuel prices. Oil demand took a hammering last year, and along with it did the price. However, this year has been a different story with oil going on a run, and petrol much the same. This time it looks as if a 32 cent decrease is on the cards…
- Eskom's debt continues to be a point of focus, and now is resulting in action. They have sold buildings to raise a total of R76.1 million so far, with more properties expected to be sold. This is wisdom, rather than just raising prices and taxes on consumers, start with actually making use of the resources that are simply wasting away in their possession, but how about looking at the inflated payroll? The target is R2bn, so a lot more needs to go yet…
- And then there was the big story of the week from the stocks, which was the launch of $COIN, Coinbase the cryptocurrency exchange. Coinbase have positioned themselves as a leader in the space, being the first exchange to go public. It has been described as the party that will make cryptocurrency become mainstream, and it certainly did go off with a bang as shares opened at $381, before closing trade at $328.28 per share, valuing it at $85.8 million. At the same time, Bitcoin and other markets rocketed higher. You can no longer ignore the crypto wave...but just watch for the next bubble burst ala 2017… it is coming again!
- Lastly in the US, the Fed Chair Jerome Powell stated there is a strong likelihood that there may be no interest rate hike until 2023. This saw emerging market currencies (such as the rand) gain strength as investors search for yield elsewhere.
And getting back to the Rand, Friday saw the ZAR slip a little from its healthy position to close just over R14.30.
However, on the whole, still a successful week for the Rand!
And that was the wrap...
The Week Ahead (19-23 April 2021) |
And as we look forward into the second half of April, this week does not have a lot of significant events apart from ECB Rate Decisions:
- SA - Inflation Rate
- USA - Jobless Claims, GDP
- UK & EU - Interest Rate decision, Deposit Rate Decision, ECB Monetary Policy Statement
But there is a lot going on, whether financially, economically, socially or politically - so don't expect a week without eventful triggers.
The Rand has enjoyed good fortunes the past few weeks, but as we mentioned last week, it seems it may be starting to run out of steam.
Based on our analysis, we will be watching some key levels (as depicted in our forecasts), and the Rand's activities this next week or so will likely give some direction for the weeks - and possibly months - ahead.
Watch this space...
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.
(You don't want to regret not having done so this time next week...)
Look forward to hearing from you.
To your success~
James Paynter
