Well, well...what an intriguing week.
The Rand never ceases to surprise, as what was meant to be a watershed week for the Dollar with US Stimulus poised to be approved...
...and then it all went the other way, as the Rand broke through to new strongest levels since mid-September.
With the Rand and markets generally being the irrational beings that they are, this should be of no surprise to anyone who has followed the markets through 2020.
What was there to turn the Rand positive from April obliteration to R19.33/$?
Nothing.
But the sentiment had reached an EXTREME of negativity. When NO ONE believed the Rand would ever get stronger again.
This is the exact moment that the market will turn. And when your emotions are screaming "panic", when in fact you should be waiting.
So the markets are a difficult game...
...but lets get into the full Rand market review and see what we can take from it into this week ahead.
So during the course of the week, we had some more major headlines:
- Economic Recovery Plan - opposition parties sparred with Ramaphosa on his proposed plan in parliament.
- Stimulus stall - another week, another failed attempt at an agreement between the Democrats and Republicans on a stimulus package to support the economy...where to now?
- Free State fires - terrible damage inflicted by fires across multiple farms left huge losses to the agriculture sector...
- US Election - as most polls continue to show Biden holding a significant lead, others showed a narrowing, as debates rolled on as to whether they could even be trusted!
So as we began the big week, many eyes for SA were already on the following one...
The reason being, Tito Mboweni's Mid-Term budget speech had been delayed by one week to the 28th of October. This is due to be one of the major indicators of what SA is in for over the next few months...
But before that happened, there were some leading indicators of what to expect in Ramaphosa's economic recovery plan, due to be debated in parliament.
And debated it was! DA's Steenhuisen laid into the plan calling it "a letter to Santa" and said that the pandemic didn't destroy the economy, "the ANC did". He laid into the ruling party, stating that "We’re trying to recover from decades of bad governance and poor ANC policy. And it is disingenuous – and extremely opportunistic – to claim otherwise."
Ramaphosa retorted that the lockdowns had been necessary and that many lives had been saved as a result of them, with all political parties agreeing as to this...
...but that doesn't explain ridiculous restrictions that were in place for months, such as partial restrictions on ecommerce sales.
Along with that, it takes away from the point that was made - the country was in junk status way before the pandemic even began!
These kinds of tensions were playing out just as the US Stimulus debates continued, slowly making progress on Monday and Tuesday, with the differences being ironed out bit by bit by House Speaker Pelosi and Treasury Secretary Mnunchin.
Overall, this should have made for a perfect storm to drive the Rand weaker - at least, logic would say so...not so?
Well, it wasn't quite that! At least not the way you would think:
After opening the week at R16.55/$, the Rand had (somehow) come out on tops through the first half of the week to test R16.25 on Wednesday afternoon.
So against all odds, the Rand had done it again, as the Dollar Index tumbled toward 92.00, losing more ground through the week once again.
So markets are logical and follow the news? Tell me another one...
And then in other news...
- Awful wildfires across the Free State plagued the farming industry as multiple outbreaks swept up land when combined with strong winds. While it is typical to have some fires, there is a very questionable element in them following the EFF's Ndlozi singing "call the fire brigade, burn these Boers". How is it that directly after this, there is an outbreak of fires across many farms? Without proof, no charge can be laid, but it is at the very least questionable - while Ndlozi's actions have resulted in a charges laid by the DA.
- The US election continues to heat up as the polls showed a narrowing of the race nationally between Trump and Biden, but with Biden still holding the edge in most battleground states. The latest swing in the polls has come following the hard drive of Hunter Biden, Joe's son, and its contents being leaked out and investigated to see what happened in his dealings in Asia. The next presidential debate on Thursday was more controlled and quite different to the previous one. But it remains to be seen if this moves the needle - late swings are possible, and as we saw in 2016, the polls are often far from accurate.
A recent survey by the Cato Institute showing that 62% of Americans (and 77% of conservatives) are afraid to voice their political views - more so than in 2016, which makes any polls a skewed guess at best. Make no mistake about it, this election is crucial from many perspectives, and everyone is watching this space to get and indication of what the years ahead hold.
- Speaking of economies, China's seems to be rebounding (if stats can be believed). The world’s 2nd largest economy posted a consecutive positive quarterly growth rate (4.9%), a rise in retail sales and an increase of imports.
- Back in the US, stimulus discussions continued between Republicans and Democrats, and according to all parties, progress was being made. However, the proposed Tuesday deadline came and went, as did Wednesday and Thursday with no concrete progress. With just a handful of days left until the election, it is highly unlikely that anything will happen before November 3, with neither side wanting to give the other a win, at the expense of households and businesses needing the boost.
As for the Rand, it continued to hold the upper hand into the back half of the week, testing the R16.20 and below on Thursday and then even stronger on Friday.
It had been a remarkable couple of weeks as every bit of negative news was seemingly ignored and the ZAR just pushed on!
The Week Ahead (26-30 October 2020) |
As we look to the week ahead, we have fundamental events aplenty as triggers as Mboweni's postponed budget takes center stage, with the main ones being:
- SA - Unemployment Rate Q3, Mid Term Budget, Inflation Rate, Balance of Trade
- USA - Trade Balance, Jobless claims, GDP
- UK & EU - Interest & Deposit Rate Decision, Monetary Policy Statement, GDP
Don't expect these to be the only talking points, as we head into the final week of campaigning from Trump and Biden, approaching the critical November 3rd election. It promises to be another humdinger of an election, with markets watching in anticipation.
As for the Rand, we will keep looking at our Elliott Wave based forecasting system to give us some clues, with some key levels that we will be watching to confirm the larger degree trends.
Another interesting week lies ahead!
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.
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Look forward to hearing from you.
To your success~
James Paynter
