Welcome to the Weekly Rand Review for the week prior ending September 1, 2023.

In a week characterized by a scarcity of significant economic data on the local front, the South African Rand looked beyond its borders for direction.

Global market sentiment took center stage, dictating the Rand's course as investors worldwide digested global events such as the Jackson Hole Symposium.

U.S. Federal Reserve Chair Jerome Powell reaffirmed the possibility of additional interest rate hikes in the world's largest economy, emphasizing their potential role in curbing inflation if deemed necessary…

…which is something that does not bode well for riskier assets like the Rand.

A thin but important week of data - here’s your recap of the week's events.

Key Moments (28 Aug - 1 Sep 2023)

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

• SA Private Credit - The Rand experienced a decline in midweek following the release of data indicating that the growth of the country's private sector credit was below expectations, and the budget deficit had expanded.
• Local PPI Eases -Stats SA published a new batch of favorable data regarding the business landscape in South Africa, showing that the annual producer price inflation (PPI) continued to decline in July, indicating a positive trend for businesses operating within the country.
• US Non-Farm Payrolls - Despite data revealing that the United States generated above the expected number of new jobs, the positive Non-Farm Payroll numbers were somewhat diminished by a minor uptick in the US unemployment rate.

After managing its first green arrow of the month, the Rand stepped into the final week of August just below R18.60/$ but under pressure following the hawkish comments made by US Fed Chairman Jerome Powell regarding the possibility of further rate hikes in the world's top economy…

…and it didn’t take long before that pressure became evident as the local unit pushed above R18.70/$ on a Monday with limited data results expected.

The Rand made background overnight and traded sideways in the R18.50/$ region for the majority of Tuesday.

On Wednesday, the local unit declined in value following the release of economic data that unsurprisingly raised concerns in the financial markets. A major factor contributing to this decline was data from the Reserve Bank, which indicated that private sector credit in South Africa had grown slower than expected.

Private sector credit increased by 5.87% year-on-year in July, down from 6.25% in the previous month, falling well short of expectations and signifying potential implications for economic activity and spending within the country.

Additionally, figures released by the National Treasury painted another concerning picture of South Africa's fiscal health, revealing that South Africa's budget moved into a deficit of R143.8 billion for the month...

...marking the largest deficit recorded since 2004.

To put this into perspective, the country had recorded a surplus of R36.7 billion in the previous month of June!

Such a swift shift from surplus to deficit raised alarms among investors and market participants.

Back in June, the central bank had already expressed its apprehensions regarding a troubling trend: a growing reluctance among domestic investors to absorb the government's issuance of debt securities…

…and in response to the latest results, Governor Lesetja Kganyago once again emphasized the critical importance of mitigating fiscal risks within the country. Stats SA then released another round of encouraging data for South African businesses as annual producer price inflation (PPI) continued to ease in July.

The Annual PPI (final manufactured goods) saw an encouraging decline from 4.8% in June 2023 to 2.7% in July 2023, following the most recent Consumer Price Inflation (CPI) figures displaying a decrease from 5.4% to 4.6% over the same period...

...placing it back in the middle of the Reserve Bank's (SARB) 3%-6% target range.

While the SARB has maintained its vigilance regarding inflation, the drop in PPI suggests that consumer prices should continue to decrease, albeit from a higher initial baseline.

South Africa also recorded a preliminary trade balance surplus of R16.0 billion in July 2023, according to data from the SARS which resulted from exports totaling R174.0 billion and imports reaching R158.0 billion...

...including trade with Botswana, Eswatini, Lesotho, and Namibia (BELN).

While the PPI results made for positive reading, the budget deficit figures and concerns over ongoing rate hikes in the US combined to deter investors from their Rand exposures…

…after starting Thursday at R18.70/$, the local unit slid to R18.87/$ by the close of trade and at risk of further pain with the crucial payroll reports to be released in the US on Friday.

Before we continue, let’s take a quick look at some of the other major news headlines of the week:

• Saffers will have to brace themselves for a substantial increase in petrol and diesel prices in the upcoming week. Data from the Central Energy Fund, compiled at the end of the month, suggests that petrol prices will surge by an estimated R1.60 to R1.65 per litre in September. Meanwhile, diesel prices are anticipated to climb even further, ranging from R2.67 to R2.84 per litre.

  The primary drivers behind these price spikes have been the elevated global oil prices and the depreciation of the Rand in August. These factors have combined to deliver a dual blow to motorists, with the current oil price hovering around $85 per barrel, a notable increase from the levels around $80 per barrel observed at the close of July.

• Evergrande's woes have continued after filing for Chapter 15 bankruptcy in mid-August. The Chinese property developer suffered a dramatic 79% decline in stock price when it resumed trading on Monday (after an almost 18-month hiatus), losing some $2.2 billion in market value.

  Evergrande, renowned as the world's most heavily indebted property firm, carrying liabilities of approximately $328 billion, has witnessed a dramatic erosion of over 99% of its share market worth in the last three years.

  The company's return to trading on the Hong Kong stock exchange followed a 17-month suspension, during which Evergrande sought to restructure its offshore debt. However, investors reacted swiftly by slashing more than four-fifths of the firm's market value. This development occurred just a month after Evergrande reported a staggering combined loss of $81 billion for the years 2021 and 2022.

  And during the week, Country Garden, the other giant Chinese developer situated at the epicenter of a real estate crisis that has sparked concerns about the broader condition of the world's second-largest economy, unveiled a loss of 49 billion yuan ($6.7 billion) for the first half of the year, fueling concerns of a likely catastrophic default. The Chinese mega-company is tottering...what's coming next for the Chinese economy?

Back to local news, by Friday morning, the Rand was trading in the mid-R18.80s but improved to R18.70/$ ahead of the non-farm payroll results from the US.

In August, the United States saw a strong job growth figure, signaling resilience in a labour market that's been facing pressure due to interest rate hikes by the Federal Reserve.

The US Bureau of Labor Statistics reported that nonfarm payrolls expanded by 187,000 for the month, surpassing the anticipated figure of 170,000…

…however, the unemployment rate saw a significant uptick to 3.8%, marking an increase from July and the highest level recorded since February 2022.

Average hourly earnings for the month also recorded a 0.2% increase, with a 4.3% rise from the previous year. The Fed has signaled its close monitoring of the report, searching for any signs that the labour market might finally be showing signs of weakening after more than a year of interest rate increases.

While the report did indicate a continued robust hiring trend in August, it also revealed considerably weaker job growth figures for the prior two months, subtracting a total of 110,000 jobs from the gains in June and July, with the new figures standing at 105,000 and 157,000 jobs, respectively.

Following the NFP results, the Rand pushed back above the R18.80/$ mark to start the final month of Q3 with a red arrow.

The Week Ahead (4 - 8 Sep 2023)

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

• SA GDP Growth Rate YoY (Q2), Current Account (Q2), Business Confidence (Q3)
• EU/UK EU PPI (Jul), EU Retail Sales YoY (Jul)
• US Balance of Trade (Jul), ISM Services PMI (Aug)

A big week incoming with local GDP figures set to shine further light on SA’s economic health, though with improved manufacturing and mining figures last month, there is optimism of a positive reading.

Our Elliot-wave-based forecasts are showing a few interesting moves next week, so be sure to get your access so you don’t miss out on these potentially profitable shifts.

Until next week. Safe trading.

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To your success~

James Paynter

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