We’re back!

And with the US Thanksgiving break in the rear-view mirror, it’s now time for us to carve the recent happenings of the global economy. It’s been a busy couple of weeks with major economic news and events causing significant market movement.

Largely, global economies have enjoyed a couple of weeks of gains, gobbling up ground on the greenback with investors’ reinvigorated belief that slower rate hikes are imminent.

Rand investors, too, were reveling in the afterglow of moderating Fed signals as the local unit welcomed a period of sub-R17/$ levels…

...but it was short-lived as local political drama knocked it back on its haunches.

Ready for the full scoop? Let’s head to the full review!

Key Moments (28 Nov - 2 Dec 2022)

Here’s what captured the headlines in the week:

• Ramaphosa Under Pressure - On Thursday, the Rand suffered its biggest one-day loss since November 2016 as markets and investors digested the news of a possible impeachment threatening to end the SA President’s tenure.
• Fed Chair Powell’s Speech - In his latest address to the media, Jerome Powell provided a long-awaited indication that the US Fed may finally be considering switching to lower rate hikes after four consecutive 75 basis point increases.
• Unemployment Rates - Local and US unemployment rates delivered strong results, respectively, as labor markets continue to show resilience.
• Eurozone Inflation Slows - The 19 countries sharing the Euro currency breathed some relief as reports showed that inflation ticked down after a few nasty surprises in recent months.

To recap the major local events from the previous week…

...the local unit has been gradually making up ground on the US dollar over the last two weeks despite inflation quickening in October for the first time in 3 months.

In the previous week, the headline CPI was confirmed to have risen to 7.6% year on year, compared to 7.5% in September.

While many were predicting a full basis point increase by the SARB in response to the spike in inflation, the eventuality was a third successive 75 basis point hike instead. The latest increase pushes interest rates to their highest level since 2016, bringing the repo rate to 7%, while the prime rate breached double-digits to 10.5%.

SA’s monetary policy committee also provided a statement explaining that it expects the headline inflation to remain above the maximum target of 6% until Q2 of 2023. As we headed into the week, the Rand was trading at R17.14/$, level on its previous close, with investors hoping to continue the recent good form through the week.

With no major events scheduled, the local unit traded sideways through the day ahead of Tuesday’s local unemployment results, which were fairly positive.

The official unemployment rate for Q3 dropped to 32.9% from 33.9% in Q2, which equates to 7.7 million Saffers remaining unemployed…

The Rand continued to gain through the day, closing a sliver above R17/$...

...and held its form into Wednesday, opening at R16.96/$ with all attention firmly set on US Fed Chairman Jerome Powell’s speech scheduled later in the day.

Powell suggested in his much anticipated said that the full effects of the country’s belt-tightening were yet to be felt but that it “makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down”. Powell also hinted at the possibility of moderating the pace of rate increases by as soon as the December meeting…

...no doubt, that will be music to consumers’ ears.

Can we now bet on a 50-basis point increase in December, or less?

It certainly looks promising on the surface, but we’ll have to wait and see how this one develops. Most markets reacted positively, while the Rand held steady to close midweek at R16.99/$.
But that was where the good week ended...

After opening Thursday’s trade at R17.10/$, the local unit tumbled toward its worst one-day decline in six years...

...shedding as much as 4.2% to the dollar by mid-afternoon!

By 2 pm, the Rand was trading at R17.95/$ as markets tried to digest a possible exit for President Cyril Ramaphosa.

This came following reports that a section 89 panel found that the President may have contravened the Constitution and anti-corruption laws with his dealing at the Phala Phala game farm and the theft of R10.2 million ($580,000) in 2020.

The uncertainty around the presidency weighed negatively on sentiment and contributed to the selloff of the Rand as investors waited on clarity around the ramifications of the report and what it meant for Ramaphosa and the country. President Ramaphosa was scheduled to address the media on the accusations on Thursday evening, but the address was postponed at the last minute...!

This expectedly garnered angry reactions from political leaders and citizens alike. A large faction believes that there is no way for Ramaphosa to side-step the evidence or accusations and that his resignation is all but guaranteed.

A new President for 2023, perhaps? Or even earlier?

You just never know!

Meanwhile, in other news:

• The Eurozone received good news in the week as inflation ticked down more than expected, from 10.6% to 10% in November. The 19-country zone is far from out of the woods, but this most recent inflation report may pave the way for the ECB to consider a smaller 50 basis point increase next month. For the ECB, tentative signs of inflation peaking are starting to show, but the overall environment is turning recessionary, which may reinforce the possibility of them turning to smaller rate hikes from December onward.
• Chinese citizens took to the streets in midweek to protest the government's strict lockdown rules that have been stifling the country since the first wave of lockdowns in 2019/20. China remains the only major economy with such a crazy pandemic policy, with local authorities regularly clamping down on the smallest reported outbreaks, enforcing mass testing, quarantines, and hard lockdowns, despite there being no alarming death counts. Government and health officials have indicated that fine-tuning and modifications will be made to control the negative impact on people’s livelihoods; however, solid evidence of these measures is yet to be seen.
• Crypto investors just can’t catch a break! As the digital assets industry continues to struggle with the financial contagion unleashed by the collapse of the crypto exchange giant FTX, Binance, the world’s largest crypto exchange, is now investigating a hacking incident that affected several crypto tokens on Friday morning. Reports explained that a hacker managed to exploit a vulnerability in Ankr’s loyalty token aBNBc, which allowed them to mint 6 quadrillion tokens, which they converted to Binance’s own coin (BNB tokens) and transferred through a crypto mixer platform called Tornado Cash. Binance was forced to suspend withdrawals on Friday morning, yet again illustrating another example of the vulnerability in many of the contracts behind protocols and exchanges in the volatile crypto space.

On Friday, the local unit opened trade in the mid-R17.50s, making back significant ground overnight and continued gaining for the majority of the morning session, dropping to R17.25/$ before the final piece of major data releases for the week, the US jobs report.

US Non-farm payrolls rose by an impressive 263,000 in November, well ahead of the 200,00 expectation. The uptick in the average household earnings and job demand seemingly contributed to the narrative pushing back against easing monetary policies…

...another piece of data, another twist!

Investors reacted accordingly, and the greenback found support again, taking back a large chunk of the ground it lost since the US Fed’s speech just 48 hours earlier. The local unit, which is susceptible to these types of global drivers, U-turned in the afternoon trading session, and steadily receded to end the week above R17.50/$.

Where to next for the Rand?

Come back next week to find out!

The Week Ahead (Dec 5-9 2022)

In a relatively thin week of data releases, here’s what we’ll be keeping an eye on over the next five days:

• SA - Manufacturing Production MoM (OCT), Current Account (Q3), GDP Growth Rate YoY (Q3)
• EU/UK - Retail Sales YoY (OCT), GDP Growth Rate QoQ 3rd Est (Q3)
• US - ISM Non-Manufacturing PMI (NOV), PPI MoM (NOV)

Local traders will be waiting for a response to the country’s leadership crisis that contributed to the local unit’s tailspin in the week…

...but until then, the Rand will likely remain under the gun, and a poorly performing Rand would likely lead to further aggressive policy response in the fear of being left behind by other countries – particularly the US.

The sharp interest rate hikes have heaped pain on the already embattled economy and consumers, who are collectively already struggling to manage soaring food, fuel, and energy bills in the wake of record load shedding. All indicators point to 8% interest rates firmly being on the cards and a testing end to 2022 for SA.

Best stay cautious. You can be forgiven for being tentative in a volatile market.

As for us? We'll be relying on our Elliot-Wave-based forecasts to provide some direction. Please join us as we see out the year safely.

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.