A busy week of economic data, as all roads led to Jackson Hole.

With major economic events and data releases scheduled throughout the week globally, investors were keeping one eye firmly on the annual economic policy symposium due toward the tail-end of the week...

...where the US Fed Chairman Jerome Powell would headline a host of policymakers to announce their plans for ongoing rate hikes as the battle against inflation continues.

Rand bulls were also awaiting key local consumer and producer inflation data for Q2 after a few weeks of the local unit’s movement being dictated mainly by offshore catalysts.

Certainly no shortage of triggers for the week, but first, let’s recap what made the headlines.

Key Moments (22-26 August 2022)

These were the major highlights of the last 5 days:

• SA Inflation Rate - Local headline inflation quickened in July to record a 13-year high of 7.8% and continues to show a stickiness above the Reserve Bank’s 6% ceiling.
• US Interest Rate - The eagerly anticipated Jackson Hall symposium was scheduled for Friday afternoon as investors looked for indicators about the expected level and duration of ongoing interest rate hikes.”
• UK Energy Crisis - Britain’s energy regulator announces plans to raise its main cap on consumer energy bills to an average of £3,549 from £1,971 per year.
• EUR/USD Parity - The European shared currency slumped to a 2-decade low as investors forecast a much quicker and more painful recession than originally anticipated.

After last week’s capitulation, the Rand opened just above R17/$ as the week got off to a quiet start with investors preparing for a busy week ahead.

In after hours trading, the local unit managed to make back some ground against the dollar ahead of Q2 unemployment which would provide some clues on the health of the local economy...

...and it turned out to be 'positive', albeit marginally.

The nationwide unemployment rate improved by 0.6% from 34.5% in the first quarter to 33.9% in Q2 with the largest gains being made in the community and social service sectors...

An official unemployment rate of 34.5% can hardly be called positive news, but even this needs to be taken with a pinch of salt, as jobs numbers in SA have long been called into question in terms of accuracy, with many saying this number is closer to 50%!

And the Rand seemed to share this view, as it spiked to R17.13/$ in early afternoon trading.

Across in Europe, the Eurozone was hit with a new setback on Tuesday as news emerged reporting that Russia’s Gazprom intends to halt natural gas to Europe via Nord Stream 1 in a 3-day closure at the end of this month.

With unprecedented heatwaves already placing a strain on energy capacity and prices, further disruptions could prove to have devastating effects on the 19-country economy...

...and the signs are already showing.

Amid the energy crisis bite, the Euro sank to a new 2-decade low on Tuesday, breaching the psychological threshold of parity with the dollar, where it traded for most of midweek. All the while, inflation continues to run at a record pace and frustrations continue to grow among battered consumers and businesses over the ECB’s approach to dealing with the issue.

And perhaps rightfully so.

Below is some context of just how bad the electricity prices are in Europe...this isn't the chart of some crazy cryptocurrency...this is actual Euros per Megawatt hour!

Across in the US last week showed signs of inflation reaching its peak, with economists giving credit in part to the Fed's aggressive actions which have seen them raise interest rates by 225 basis points since March this year...

...while in contrast, the Eurozone had implemented a mere 50 basis point increase over the same period.

The overreliance on Russian gas by the Euro area’s major economies, Germany and Italy, has left the markets unnerved and to an extent frustrated as many forecast the Euro potentially dropping as low as € 0.95/$.

Some tough times lie ahead, as the Euro area finds itself between a rock and a hard place!

Back locally, the Rand showed on Wednesday morning trade at R17.03/$ as local inflation data took centre stage by mid-morning. And as it turned out, SA’s headline inflation was unsurprisingly confirmed to have increased to 7.8% YoY in July, up from 7.4% a month earlier.

Meanwhile, producer inflation for July came in at tear-jerking 18% from 16.2% in June, ripping up the mid-17% level expectations and underlining the difficulties being faced by businesses...

...which became even more evident with a National Shutdown being implemented across major organizations on Wednesday in response to seemingly uncontrollable living, production, and energy costs.

The local unit, however, strengthened on Thursday to the R16.80s amidst the accelerated consumer inflation data and heightened the prospects of further interest rate hikes on the horizon.

All of that before the crucial Jackson Hole symposium on Friday. But before we get to that major market mover...

...here’s what else was in the news last week:

• China has been hit with record-breaking heatwaves and runaway fires this week as some reports showed that parts of the Yangtze River had dried up. This sounds major alarms for the world's second-largest economy and creates even greater concerns about the knock-on effect that will have on its own economy and worse, the global supply chain.
• As the conflict in Ukraine reaches the 6-month mark, it seems that the war is nowhere near over, and the information warfare and the false narratives (and false flags) seem to be escalating, making it difficult to know what is actually happening. The truth will no doubt come out, but one thing is for sure, the mainstream media are not to be trusted to give us an objective view.
• President Joe Biden is in full-on campaigning mode before the mid-term elections. On Wednesday, the President announced his intentions to cancel up to $10,000 in federal student loans for Americans who earn less than $125,000 each. In addition, he will also forgive $20,000 of debt for students on Pell Grants. Just how much is this going to actually help the economy over the next 10 years - and who will pay for it? Stifling tax hikes coming?

As we rolled into Friday, the local unit was at R16.78/$ in the early trading session as all focus was on Jackson Hole later that day...

Investors remained wary that hawkish comments by the US Fed would likely set the market alight and unleash the dollar like a wrecking ball against most economies...

...but before that, potentially catastrophic news surfaced from the UK. Britain’s energy regulator announced a staggering rise to its main price cap. These caps limit the standard charge that the energy supplier can bill domestic customers and the most recent move sees this amount increase from £1,971 to a whopping £3,549 per year!

Unfortunately, it gets worse for the Brits...

...experts are already forecasting that the latest cap increase is just the first of a series of expected increases which may see the cap reaching in the region of £5,300 by Q2 next year. As winter approaches, many UK citizens will see their energy supply cut entirely while millions are expected to be unable to keep up with payments and are likely to incur unmanageable arrears.

And finally, to the long-awaited speech from the US Fed Chair, Jerome Powell...

...who was particularly hawkish in his address from Jackson Hole.

Powell firmly reiterated that the central bank will continue raising rates to subdue inflationary pressures while also warning that there may be “some pain” ahead as these measures take hold.

Pretty clear intentions set by the Fed!

Seems that US policymakers are still extremely cautious against prematurely loosening their existing policy until they can conclusively say that they will avert a hard landing…

…which makes sense, all things considered.

In the end, we saw the local unit close around R16.89 to the Dollar, on the back foot, and edgy to say the least - even though it had not been a week where ground had been lost...

The Week Ahead (30 Aug - 2 Sep 2022)

And hurtling into September we go...almost 3/4 of the way through the year already!

Here are the major market movers scheduled for the next five days:

• US - Jobless Claims, Non Farm Payrolls, Unemployment Rate
• UK/EU - Inflation Rate, CPI, Unemployment Rate,
• SA - Balance of Trade

So those are the events we are watching, but all eyes remain on the US - and what their next call will be. For now, the Rand has remained fairly calm...but that is just for now!

As we know, when the US sneezes, the world catches a cold, and we’re likely to see those symptoms start to show during the course of next week. And is likely going to make predicting the local unit's movement, all the more difficult.

We’ll be using our Elliot-wave based forecasting system to help us through this difficult time and give us the information we need to make educated, informed and rational decisions.

You can too!

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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To your success~

James Paynter