Welcome back to your favourite Weekly Rand Review!

As we delve into the week of November 6-10, the South African Rand found itself navigating through a landscape of relative quiet on the domestic economic front...

… and the lack of significant local events meant that the local unit would be reliant on global developments to steer its course.

A key moment in the week came with the speech from the US Federal Reserve chairman Jerome Powell, who took to the stage to address onlookers about his plans for monetary policy over the foreseeable future...

...an as always, the US policy will generally impact most economies...
And so we keep a watch on this market above all.

While the week lacked impactful economic events locally, the sparse data we did receive painted a rather grim picture for South Africa's GDP in the last quarter…

…with crucial production sectors continuing to deliver sub-optimal output results as we head to year-end.

All the while, our forecasting system was once again knocking it out of the park - as all of SA is hoping the Proteas can do in the World Cup semi-finals.

Here’s your weekly round-up.

Key Moments (6-10 Nov 2023)

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

• Local Production Data - In September, South Africa's two crucial productive sectors, mining and manufacturing, performed below expectations, casting a shadow on the outlook for the third-quarter GDP.
• US Fed Chair Speech - Jerome Powell stated on Thursday that he and his colleagues find encouragement in the deceleration of inflation, yet they remain uncertain about whether their efforts have been sufficient to sustain the current trend.

On Monday morning, the local unit opened trading doors at R18.23/$.

The Rand had experienced a notable strengthening against the greenback since Finance Minister Enoch Godongwana delivered his medium-term budget speech the previous week…

…while a softer US dollar, following the US Fed's decision to hold rates, also contributed to the Rand's strength. The tightening of financial conditions in the US, marked by higher long-term bond yields, has reinforced expectations that the last interest rate hike has occurred…

Net result: the Rand has benefited as foreign investors have dabbled in riskier assets.

The local unit experienced a decline on Tuesday, though, as some of the optimism in risk sentiment was moderated by weaker Chinese trade data.

Moreover, oil prices experienced downward pressure, decreasing by nearly 6% last week…

…with growing optimism that the Israel-Hamas conflict could be contained in the Middle East, partly alleviating concerns about potential disruptions to oil supply from the region.

The price of Brent Crude dropped to a 10-week low, reaching $78 per barrel during the week despite major oil producers Saudi Arabia and Russia reiterating their commitment to additional voluntary oil supply cuts until the year's end. Despite the Rand relinquishing some of its gains, the declining global oil price is expected to lead to another substantial reduction in petrol and diesel prices in December for Saffers... And likely globally, everyone should get some relief at the pump.

According to the recent Central Energy Fund data, petrol prices are exhibiting an over-recovery (indicating a potential price drop) between R1.23 to R1.27 per litre…

…while wholesale diesel prices are anticipating a reduction of nearly R2.00 per litre.

And now, seeing as it has been a while since we last touched on The Days of Our Lights, so let’s catch up on the happenings over at Eish-kom.

In an address in the week, Electricity Minister Ramokgopa emphasised that while Eskom's generation challenges are well-known, transmission issues are now emerging as the next major concern.

Ramokgopa stated that over 1,000 transmission-related projects need to be developed and implemented in the next decade to meet electricity demand. Eskom's Transmission Development Plan for 2022 included 207 expansion projects and 802 refurbishment projects.

Here’s the kicker, though…

…the infrastructure involves building 14,218 km of powerlines and 122,669 MVA of transformation, with financing being a significant hurdle.

How much do they want now, you ask?

Well, it is estimated at over R200 billion for the transmission development alone and a total of R390 billion over the next decade to meet grid capacity demand.

Yep, billion, with a B...

Eish!

And where is that going to come from??

On Wednesday, the local unit declined against a resurgent US dollar, dropping from R18.37/$ at the start of the day to R18.47/$ ahead of Jerome Powell’s speech on Thursday.

But before that, the latest round of local production figures were released and did not make for pleasant reading. In September, both of South Africa's crucial productive sectors, manufacturing and mining, exhibited declines on an annual and monthly basis.

The likelihood of a contraction in South Africa's gross domestic product (GDP) for the third quarter now seems almost certain...

Later that day, we cast our eyes to the US, where US Fed chairman Jerome Powell was set to step into the spotlight to discuss monetary policy plans for the foreseeable future.

Powell expressed encouragement over the slowing pace of inflation but remained uncertain about whether sufficient measures had been taken to sustain this trend. This comes as inflation remains well above the Feds' target rate but also significantly lower than its peak last year.

After returning to the stage, Powell went on to warn against excessive optimism regarding potential rate cuts next year…

…and re-emphasised the Fed's commitment to hike rates if inflation reaccelerates.

This followed a string of Fed Reserve officials suggesting that they may have come to the end of their hiking cycle earlier in the week. The conflicting signals from the Federal Reserve regarding its next moves on interest rates seemingly left financial markets in a state of uncertainty…

…and the greenback strengthened on Thursday evening, with the Rand dropping to the mid-R18.60s and on track for a red arrow heading into Friday.

Then in other news:

• President Cyril Ramaphosa has authorized the deployment of 3,300 army personnel to combat illegal mining activities in South Africa, costing about R492 million. This deployment, part of "Operation Prosper," aims to maintain law and order. The Minerals Council of South Africa noted that illegal mining, occurring at both disused and active mines, negatively impacts the country's investment attractiveness, costing operating mines up to R7 billion annually and causing significant losses in export earnings, taxes, and royalties for the economy.
• The United Kingdom's Gross Domestic Product expanded at an annual rate of 0.6% in the third quarter, in line with the second quarter's growth and surpassing the market expectation of 0.5%. On a monthly basis, the UK's GDP grew by 0.2%, while it remained unchanged on a quarterly basis. Additional data revealed a yearly increase of 1.5% in Industrial Production and 3% in Manufacturing Production for September. However, Total Business Investment contracted by 4.2% on a quarterly basis over the same period.

The Rand weakened overnight and into early trade on Friday, partly influenced by the sentiment resulting from the hawkish remarks from the US Federal Reserve Chair the day before.

After opening at R18.68/$, the local unit spiked to the mid-R18.70s by lunchtime and traded sideways into the weekend.

A big red arrow!

The Week Ahead (13-17 November 2023)

Here's what we'll be eyeing up over the next five days:

• SA: Unemployment Rate (Q3), Retail Sales YoY (Sep)
• EU/UK:UK Inflation Rate (Oct), UK Unemployment Rate (Sep)
• US:Inflation Rate YoY (Oct), PPI MoM (Oct)

As we head to the midway point of November this week, CPI data from the US will be in focus as we try to determine if the US Fed will stick or twist at its next meeting.

Thankfully, our Elliottwave-based forecasts are on hand to help take some of the guess work out of the equation, as it did last week when we were bang on the money (yet again) - see below.

(Click to enlarge)

How's that for a heads-up?

We’re looking forward to a big end to the year, so be sure to take advantage of our crystal ball to navigate the coming weeks!

See you all next week.

To give you a little helping hand, feel free to take our Rand forecasting service for a test-drive!

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

P.S. Enjoyed this Weekly Rand Review? Click here to get our Weekly Rand Review in your inbox every Monday