Last time our esteemed Jacob decided to do the shuffle, we got some kind of warning that it was due to happen, with rumblings around Pravin Gordhan's safety.
This time was different. Very different.
In his 12th cabinet reshuffle in 8 years, everyone was caught unawares.
Including the Rand.
What followed was an undoing of all the good work that had been done over the last week or two. And this is not the first time this has happened either.
So, how do we prepare for these kinds of 'shock' (I say shock in that way, because we have come to expect them) events?
The only way is to have an objective system that gives market direction based on a proven method historically. Otherwise we would be expecting a cabinet reshuffle or equivalent every week...
Read on to learn more about our objective system for dealing with political and economic uncertainty...
How It Happened (16-20 Oct 2017) |
Before this whirlwind week even began, we gave our subscribers a clear outlook for what to expect in the week ahead. With the market at 13.2584, a reversal was due shortly in the 13.30-13.16 area.
Click to enlargeAnd that was very much along the lines of what happened...
Key takeaways:
- Zuma's 12th #CabinetReshuffle - as the president begins to panic with the growing support for his removal, it was time for another reshuffle...
- CPI Losses - surge to 5.5% meant that more pressure was heaped upon the poor ZAR market
- Massive Data Breach - while the Rand was not directly affected by this as such, it is worth mentioning the loss of 31 million persons details such as names, ID numbers and address details...
- SAA management shakeup - another part of Zuma's actions, and a very crucial one as 6 members were flipped around...
- Trump Tax Cuts - significant strides were made toward Trump's big tax cut plans, which was seen as hurtful to the Rand.
Hopes were high to start the week after the ZAR had ruled the previous week, gaining over 4% vs the USD.
SA's Supreme Court of Appeal ruling had given some real impetus to the Rand. However, one just felt this could not last.
Events expected for the week were nothing of massive clout - BOE & FOMC speeches, UK Inflation & SA CPI and Retail sales.
Some fascinating news also made its way onto our desk on Monday - London house prices are falling at their fastest ever rate...read on over here
So...now just to wait to see what unexpected events get thrown at us. But for Monday at least, the market was calm, and we saw the Rand slowly lose ground as far as R13.34, which was were it got to by 8am on Tuesday.
So with Day 1 out 5 passed, it was time for Tuesday.
And just when there is peace and calm, along comes sudden destruction.
Zuma started Tuesday with a blast with his 12th Cabinet Reshuffle in 8 years...
The highlights: His good SACP 'friend' Blade Nzimande was booted from Minister of Higher Education, and his close ally David Mahlobo becomes energy minister.
There was no surprise as to these changes from one aspect - Blade had been critical of Zuma, and David Mahlobo was clearly there to push the nuclear deal through...all the pieces of the puzzle fit together after reading Adriaan Basson's excellent article
It is expected that this is Zuma's last-gasp effort, but you never know. The poor Rand took a beating as the news emerged, rushing as far as R13.58 to the greenback, late on Tuesday.
One thing was sure - it looked as if Zuma was attempting to cut ties with the SAC,P who have long been the ANC's partner in crime. It is no wonder the reds want to run as a separate party in the 2019 elections...
Wednesday. And finally some positive news.
SA August retail sales surprised us at 5.5%, and should help push Q3 GDP to a mind-blowing 0.5%...(warning: slight sarcasm in the previous sentence, considering China)
But at least something to cheer for the battered currency!
The market endured a slightly choppy day, with the Rand holding a little stronger.
Later that day, it was time for our next forecast with the USDZAR trading at 13.5572. It looked as if we were pushing higher after the market had followed Friday's forecast perfectly, into the 13.61-13.72 areas...
Click to enlargeOther economic events from the last couple of days were as follows -
- CPI came in a little higher than expected - September was up 0.3% to 5.1% y/y. This was largely due to an increase in petrol inflation
- SARB increasing interest rates is only put with a 10% chance currently.
- Expectations had retail sales at under 3%, and they ended far higher - some unexpected growth had occurred - some said that we could be witnessing the South African consumers picking themselves back up after a torrid 12 months.
Thursday provided a little relief for the market, as there was some consolidation for the Rand, and ultimately a touch of strengthening.
The EURUSD was also enduring some volatile movements, and it was said that the Rand was tracking alongside it. It seemed the Catalan Independence was creating pressure on the Euro, and the chance of more on this over the weekend with Spain deciding regarding Catalonia's autonomy...
However, by 8am Friday, we were back to R13.57/$.
The big news from Thursday actually came through from the USA - President Trump had taken significant steps toward his tax cut with approval from the Senate on some important legislation regarding that.
But these small gains were wiped out (plus some) on Friday as the Rand soared over R13.70 to the Dollar, right into our target area.
It also took the EURZAR & GBPZAR to 16+ & 18+ respectively, and the USDZAR closed out around R13.65...
And the trigger here?
Well, Speculation that a desperate Zuma is planning to axe Deputy Cyril Ramaphosa and replace him with his preferred successor. Nkosazana Dlamini-Zuma - and not only that, but that he could be arrested and charged with treason! What next from this political circus? If only it was a show that did not have such critical implications.
So, another tough week closes out for the Rand. Trust Zuma to chop a hole in the bottom of the ship just when it was floating nicely...
The Week Ahead (23-27 Oct 2017) |
So it is another Blue Monday for the Rand, as it wakes up with a severe hangover from last week.
What lies in store for the week ahead?
Well, we have several medium to high impact economic data releases that could provide some triggers, but all eyes will be on Finance Minister Gigaba's medium term mini budget speech on Wednesday. Being a Zuma puppet, expect that the nuclear deals will play a massive part in how the speech is interpreted after Zuma's move to change the energy minister.
But direction will not come from any of these events in themselves, but by mass human emotion. And our analysis of these patterns of sentiment have kept me and and my clients ahead of the game more often than not.
Expect the Rand to be on the back foot initially, but there are some critical levels that need watching as these affect how the market plays out over the next few weeks.
Please join us for free to get a complete overview using the button below.
All the best for the week!
Kind regards,
James
