An intriguing week for the ZAR has come to a close with the market having ping-ponged from high to low for the majority of the 5 days.
Rand volatility is at a 5 year low on average (with Bloomberg predicting this to change), and the last 6 weeks or so have been evidence of this, with very narrow ranges...
With this last week being a massive news week, with global and local events aplenty causing a big stir across forex markets...yet the Rand seemed to mostly take it all in its stride...
...hopefully our review below can make sense of some of it all now!
And here were some of the biggest talking points of the 5 days...there could have been a lot more here, but these are just a few:
- SAA & Eskom - crunch time for the 2 SOEs as business rescue is implemented for SAA and Eskom debt increases
- GDP - the 4th contraction of the national economy on Ramaphosa's watch spelled the risks which he was facing for re-election...
- Trade War - the sentiment around the US-China spat continued to escalate, chop and change as the week went on, but it did appear as if a resolution was still on the cards soon...
- Brexit & the election - with time short, it appears as the EU has extended the deadline to 31 January 2020, and the Tories are beginning to gain ascendancy as they head toward elections.
The Rand roared into the beginning of the week in fine form well below R14.60 to the Dollar, just to confuse everyone - as no real positive sentiment surrounded the markets.
This is just a classic case of how the markets work - it is what we least expect that happens...
Markets do react to events, but only as triggers...and so often they do opposite to what rational thinking would suggest.
And sometimes there are no triggers at all!
Over in the US, Trade war tensions were high... China was adamant the US needed to roll back on all tariffs before signing the agreement ahead of the 15 December deadline, when the next round of tariffs are due to go into effect.
The US did not agree, as Trump indicated the US was not in a hurry to sign anything, and the deal seemed to have stalled...
...yet despite this, the Rand strengthened further to open Tuesday at 14.53 - supposed "analysts" battling to rationalize these movements (of course)...
On Tuesday was when local news drifted in: SA's Q3 GDP contracted by -0.6%
This was the second time we have seen contraction this year, and the 4th under Ramaphosa. However, not altogether surprising when you consider Eskom, weak business confidence and the highest unemployment in 11 years.
The local unit strengthened against USD and EUR but weakened against GBP. Yet more news of a trade agreement between the US and China helped the rand claw back some pips against the mighty dollar.
Over in the UK, the European Union (EU) has agreed to extend the Brexit deadline until 31 January 2020. The news, together with voting polls pointing to a Tory party (Boris Johnson) victory in next week’s election provided some impetus for the pound to make gains against most currencies.
Back on home soil, SAA was placed on business rescue in order to prevent a collapse of the failing SOE...
...this was after an attempted complete shutdown of the company the previous Friday, as BizNews gave some insight as to Pravin Gordhan intervening to stop the whole ship going underwater.
It was quite a week on this front, and there is more here than we can cover...
But despite all of this noise and worry, the Rand managed to hold it's own - although choppy, not much ground was lost:
And that is without even mentioning half of the news that hit...
So this was the other side of the coin, while this was all going on:
- Eskom...oh, Eishkom. This week did not look good, as news broke of municipal debt due to Eskom rising by a further R1bn, on top of all the other issues being faced by the SOE. Not only now is it owed money by foreign countries for supply of electricity, but by local municipalities too. To make matters worse, load shedding was implemented once again, up to stage 4 on Friday night & Saturday morning, stemming from unplanned maintenance schedules and wet coal.
- South Africa’s current account deficit narrowed by R18.3bn to R190.3bn in the third quarter from R208.7bn in the second quarter, according to SARB's figures. The current account deficit narrowed to 3.7% in the third quarter from 4.1% in the second, which was worse than anticipated...painting a picture that SA is importing more than it’s exporting in relation to its trading partners.
And then it was US Non-Farm Payrolls, one of the most anticipated and notorious triggers for moving the market which so many traders look to - and it was due to come out on Friday.
The expected figures were for a whopping 180k jobs to have been added in November, so surely anything below this would be Dollar-negative, and anything about this would be Rand-negative...
...at least, that is what conventional wisdom would say.
So, we waited and watched...and come 15h30, the news broke: US non-farm payrolls prints well above expectation at 266,000 jobs, the unemployment rate is at 3.5% (wow!)...
...and the Rand's reaction?
Almost nothing at all!.
After trading at 14.63 before the announcement, it closed out the week at almost the same price, in the low 14.60s...
And there you have it. Don't trust conventional wisdom.
It will trip you up, more often than not.
The Week Ahead (9-13 Dec 2019) |
Well, here we are into the last week before shutdown - can you believe it?
Where has this year gone?
There is plenty to keep the market on its toes in this busy week from a economic news perspective, with Inflation and Retail Sales locally, and interest rate decisions (as well monetary statements) in the US and Europe being the big ones to watch.
On the Rand side - the market has treaded water, but we do not expect it to stay that way ...
... a breakout is expected imminently...
...and in a week with many businesses squaring off the foreign exchange exposures, this well could be the week.
As we said last week, we are approaching some important inflexion points in our Elliott Wave-based analysis, which should provide some clarity on the two potential scenarios playing out - and we will be watching some key levels closely to confirm direction in the coming weeks.
To get a look at what we are speaking about, use the link below to get access to our latest forecasts update.
(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
