What a week!
Volatility, volatility, volatility. The markets have clicked into 6th gear heading into yearend, right as inflation and more starts to tick up to scary levels.
The Rand has been on nothing short of a rollercoaster, and who knows when it is going to stop.
Just when we thought things were slowing down and the local unit was making a comeback, the tables turned again and we were back rushing toward R15.50/USD, R18/EUR and R21/GBP.
But let's get into the full review and see what we can make of the triggers and movements that we had, and then see what the days ahead look like.
Before the chaos of the week began, we released an update to our subscribers:
The outlook was pretty simple - we were trading at R15.03 to the Dollar, and our expectation was for the market to head a little lower before we would see it bottom out in the 15.08-14.89 area, before heading weaker to the Dollar, to R15.31 and above. (see the forecast above - click to enlarge)
And the first half of the week, this was just what we saw.
The Rand was quick out of the blocks on Monday, pushing lower from just above R15 to the Dollar, heading down into the R14.80s by Tuesday evening...
...but that was when the tide turned, just as our Elliott Wave based forecasting system had called it.
Just over 24 hours later, the local unit was testing over R15.40/$!
A nothing short of insane turnaround had seen a more than 50c loss in that short space of time, and the week was looking very different by Thursday morning.
This week was meant to be all about the big event on Thursday - the Mid-Term Budget Speech by the new finance minister.
But before we had even gotten there, the week had already exploded into action!
Wednesday's news was also big though, as the latest US inflation figures came out, giving an update on the state of the US economy:
- Inflation was up 6.2% over last October, the highest level in over 30 years!
- This ties up with what consumers are seeing on the ground - higher food prices and basic goods, and significantly higher fuel prices
- This official announcement confirmed what many feared...it meant that wage increases of last month (0.4%) which were cheered by US government officials, were in fact completely negated by the inflation increases over the same period, which came in at 0.9%.
For what seemed like the first time since he came into office, Biden acknowledged and admitted that the inflation is a real problem. What has been passed off by both the Biden Administration and US Fed as just being a "brief transitional period" or words to that effect, has in fact started to have real, measurable and bad results. Biden committed to bringing prices down, making sure supply chain issues are fixed, and getting people back to work.
We will see what happens, but consumers are not happy - consumer sentiment is at a 10-year low, this just after the US had enjoyed some of the highest consumer sentiment under the Trump Administration that hadn't been seen since early 2000s.
Despite Biden's comments, the markets were spooked, and emerging markets particularly, took the pounding that we saw in the Rand.
And then in other news:
- Locally, all the focus remained on the Mid-Term Budget speech, despite the news from abroad which had affected the Rand so much. On Thursday, new finance minister Enoch Godongwana took to the stage, and set out his plans for the days ahead. On the whole, the view was that he hardly veered from the fiscal consolidation path set out by his predecessor Tito Mboweni. Overall, his speech took on more of the 'boring' elements, rather than rash and unrealistic promises that will never be fulfilled - and likely just end in a socialist/communist agenda overrunning any potential progress. This kind of boring talk is what investors like...but it will take some time before we see the market truly digest what all was said and promised.
Fin24 put his budget out in a nutshell, which you can read here...
- The other big local talking point of the week was the other form of Lockdown that South Africa is enduring - Eskom's power debacle. Load shedding affected the week once again, following some major incident in Zambia which affected SA's power supply...what next? Godongwana also mentioned that the SA Govt wants to sell Eskom's coal-fired power plants to help reduce debt burden. This seems like a very interesting policy when SA still largely relies on plants. But it seems there is disagreement between Eskom and Govt on this point, so we will have to see what happens next.
But then getting back to the Rand...
On Thursday, we saw the winds of change come back through the markets as the Rand pulled back a huge amount of ground on the Dollar, Euro and Pound - with the USDZAR touching R15.18, R17.41 to the EURZAR and R20.36 to the GBPZAR.
But on Friday, the prior trend resumed and we saw the market tracking back up towards the previous high's of the week.
Eventually, we had the local unit close out at roughly R15.35, R17.55 and R20.60 to the USD, EUR and GBP respectively...
...what a week, what volatility!
The Week Ahead (15-19 November 2021) |
As we head closer toward the end of the year, the volatility and action doesn't even seem to be showing a hint of slowing. It has been nothing short of frantic, and at this rate, no one seems to be expecting it to slow before the end of the year.
In terms of events in the week ahead, there are a few of note to watch for, most of all the SA Interest Rate decision, as markets and investors digest the mid-term budget speech:
- SA - Inflation Rate, Retail Sales, Interest Rate Decision
- US - Jobless Claims, Retail Sales
- UK - Unemployment Rate, Inflation Rate
Once again, we will be watching the markets closely, especially some key levels (based on Friday's updated forecast) to confirm our most probable outlook for the days and weeks going into yearend.
Until next week!
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Look forward to hearing from you.
To your success~
James Paynter
