It is difficult to put this week into a few words...
The market was at its undecided worst, as it fought against news, economic events all week long, leaving everyone with rather a choppy mess.
...Zuma's ousting was bungled.
...Trump made his big call on exiting the Climate Deal.
...Moody's kept SA Credit Rating steady on #JunkStatus.
...Non-Farm Payrolls and US Trade Balance sent shockwaves through the market.
...Barclays sell out 33% of their stake in Africa.
At the end of it all, the market didn't lose much, as the Rand soldiered on...
...lets see how the lone warrior did.
How It Happened (29 May - 2 June 2017) |
So at the close of the market on Friday evening, with all the expectation built up to a frantic level, it was time for us to release our forecast.
The outlook showed the market at R12.8683 to the Dollar, and the target area looking like further Rand strength before bottoming out...
...did this mean Zuma was going to be fired?!)
Only time would tell, but more often than not, the market's reactions to events are anything but rational. So, while the target area was R12.70-12.51, we did not have high expectations for a Zuma removal...
Click to enlargeAnd rightfully so, as the old snake managed to slither his way out of another corrupt NEC meeting - who would have guessed?
Zuma won the NEC debate, accused foreign agents of being behind the attempt to remove him and said the issue of the NEC ousting him must never be raised again.
Same old tricks, and yet he gets away every time, much to the chagrin of the South African public.
So what did the Rand do as a result of this? Weakened?
Surely...?
Nope - exactly the opposite.
The Rand opened around R12.70/$ - almost 15c from where it had closed on Friday! How could this have happened?
No clear evidence was there as to why, and economists bumbled around while trying to find the answers...
...the only answer we had was to trust the Elliott Wave Principle again, the Rand had landed smack in the middle of our target area.
The market then proceeded to bottom out exactly as per our prediction, heading higher throughout the rest of the day.
So, it had ended in rather a boomerang day for the Rand, as it had made a best level for the month of R12.67, before jack-knifing up to R13/$ and above in the latter part of the day!
So, with President Jacob Zuma staying put, the rand’s muted reaction suggests investors are still finding the country’s yields tempting enough to look past the damage he can do to the nation’s economy.
Some other good news for South Africa, was an expected petrol price drop in June, of up to 26 cents per litre - always a nice bonus to start the month with.
Moving on in the week, Tuesday saw us open just over R13/$, with further weakness quite possible.
News for Tuesday was predictions that when President Jacob Zuma’s term as ANC president comes to an end in December, the rand could rally to R11.50/$...so some noise out of the economic hubbub suggested 🙂
For now, the Rand was taking a beating.
It moved onwards up over R13.10/$ in double quick time, and by late afternoon had hit R13.16...
...a far cry from where it was just over 24 hours before.
The Rand topped out momentarily on Tuesday evening, and consolidated after a high of 13.16, retracing to sub R13.10 levels by the following morning...
And then Wednesday!
Her majesty’s pound was supposedly under pressure, after a number of polls indicated that British Prime Minister Theresa May's Conservative Party may not win elections as easily as previously expected...
...with the crucial election just a few days away.
Back at home, the consistent level of uncertainty was beginning to take its toll on the SA economic growth, as economists expect growth to average around just 1% for 2017 and among the reasons for this is uncertainty following the Cabinet reshuffle in March.
An economy can only take so much!
The rand traded at R13.17 against the greenback at the close of the JSE on Tuesday as heightened political risk weighed on the local unit, despite the dollar retreating against major currencies.
The market is said to be waiting on announcements from credit rating agencies S&P and Moody’s before structuring forward guidance...
...but on Wednesday, we got some clear guidance.
After a fair choppy and undecided day, the market had muddled its way to R13.10 by mid afternoon.
And then the Rand began to push during the last of the afternoon and evening, striking a high of R13.21...but that was as far as it got.
On Wednesday night, it topped out, and kept on moving throughout the non-business hours of South Africa. By midnight, it had hit R13.06/$, and looked like it was picking up momentum...
Now, this was around when we released our forecast for the coming few days.
The market was sitting at R13.1146 to the Dollar, and the expected market trend was further Rand weakness, but with crucial levels to watch being R13.0088, and 12.6777. A break below 13.0088 would delay the outlook, and 12.6777 would invalidate it...
Click to enlargeThe day before South Africa’s April trade balance had disappointed with a R5.10bn surplus.
Despite missing expectations, the surplus was enough to stem rand losses. Barclays are set to sell another chunk of their Barclays Africa stake, 33.7% to be exact.
But for Wednesday evening through Thursday morning, the Rand held fairly stable, and was trading around R13.13 by mid-morning...
And then things changed.
Fast.
In no time, the market had pin-dropped below R13/$, breaking through that crucial level of R13.0088...
This meant there was going to be a delay on our forecast, and possibly more Rand strength.
And so there was.
As the day rolled on, so did the Rand, onwards below sub R13/$ levels! By late evening on Thursday, it had made its way to R12.86 and looked like it had some more gas in the tank yet!
Moving on to the last day of the working week, things were looking good for the Rand!
A surprisingly positive Fitch (credit rating agency) decision and strong emerging markets helped the rand gain some momentum.
Now, on the last day of the week, we had the US Trade Balance and the Non-Farm Payrolls - two majors in terms of economic events.
For the first half of the day, the Rand consolidated and back tracked on its previous few days of strength...
...but as we built up toward the 2 key events of the day at 14:30, the mood changed.
The market topped out in its little move at R12.96, and was soon trading below R12.90/$ by the time the action began...
...and suprisingly, there was not nearly as much as was expected!
That being said, the Rand did manage a frantic 14c range in just one hour, although minimal change in price...
As the afternoon and evening wore on, the ZAR kept pushing hard, and managed to close off the day beneath R12.80/$ - all in all, not a bad week at all!
(if we could just forget how we got from Point A to Point B...)
The Week Ahead (5-9 June 2017) |
The week ahead is one filled with potholes and pitfalls...
...with the biggest one being the UK Parlimentary Election.
This surprise election which was called just when everyone was least expecting it, is bound to set the tone on a lot of how the week goes, with another terrible terrorist attack in London likely to be in the minds of voters as they take to the polls.
This event, packed alongside the ECB Interest Rate Decision is going to make all the difference.
That is, in terms of triggers.
What we need is market direction. Not market triggers.
And that is where most often get caught up - an eye on what is going on around you is only wisdom to keep your finger on the pulse, but there is a fine line between being watchful, and wasting your time.
Purely following political/social/economic events is not going to give you any indication of market direction, as we saw again this past week.
All the best for the week ahead,
James
