Limited Moody’s News Is Good News

What we know

 

Following a rather agonising wait last week, Moody’s chose to say little on Friday night and it was certainly a case of no news being good news. Having witnessed high levels of market nervousness leading up to the expected announcement, which saw the ZAR.USD touch just under 14.75, relief at avoiding the downgrade saw a quick reversal this week, allowing the Rand to recoup all of March’s losses.

While dodging a downgrade now is obviously positive, no one is under any illusion that the threat of one later in the year does not remain high. Indeed, Moody’s themselves have made clear that signs of growth resulting from domestic structural reforms need to become evident, while Eskom remains a key risk in the near to medium-term. As such, we now question the extent to which further ZAR strength should be expected from current levels (14.10 at the time of writing).

And once again, Brexit. We really have tried to get to grips with this debacle, alas we have just about given up attempting to make sense of the nonsensical situation. Everything that seems binding is not, agreements are agreed, but not necessarily under law and deadlines are simply converted into later deadlines. There were more fireworks this week, with the bottom-line being that a no-deal Brexit is now highly unlikely and an extension to the exit-date inevitable. Expect further uncertainty to remain as the saga continues.

What others say

 

01 April 2019

MoneyWeb – Moody’s Reprieve An Opportunity For SA

“…The agency eventually delivered an update in the early hours of Saturday morning, it was a non-event. Moody’s updated its website to list South Africa under ‘ratings that were not updated for issuers on the calendar for March 29’ without releasing a supporting outlook.”

Fin24 – Higher Refunds At SARS Result In R14.6 Billion Deficit

“…The revenue collection agency said that gross collections grew by 8.6% year-on-year. Refunds recorded an even more impressive annual growth of 22.7%… Mamiky Leolo, acting group executive of the tax, customs and excise unit at SARS, said the shortfall was near historic proportions.”

02 April 2019

IOL – Moody’s Keeps SA At Investment Grade

“…We expect South Africa’s credit profile to remain in line with those of Baa3-rated sovereigns,” Moody’s said… Government’s policies and the institutions will remain focused on addressing this trend but any reversal will be gradual at best given that social, economic and fiscal policy objectives will remain difficult to reconcile.”

RMB Global Market Research – Sentiment Improves As Growth Concerns Subside

“…If the UK Parliament still can’t reach a deal, it means that a longer delay to Brexit, a general election or leaving the EU without a deal, are still pretty much on the cards… Parliament is expected to convene again on Wednesday and have another go at voting on various options. This also opens up an opportunity for Prime Minister, Theresa May, to put her deal up for a vote again for the fourth time.”

03 April 2019

Bloomberg – UK’s May Seeks Deal With Labour To Break Brexit ‘Logjam’

““…She abandoned her strategy of making Brexit a project… accepting that this will never gather enough votes to get through Parliament, and asked Jeremy Corbyn, leader of the opposition Labour Party, to rescue her.””

Daily Maverick – Leaked Emails, Dirty Cops, State Capture And Ace Magashule Unveiled

““Gangster State: Unravelling Ace Magashule’s web of capture, investigative journalist Pieter-Louis Myburgh ventures deeper than ever before into Ace Magashule’s murky dealings, from his time as a struggle activist in the 1980s to his powerful rule as premier of the Free State province for nearly a decade, and his rise to one of the ANC’s most influential position.””

04 April 2019

Nedbank Daily Market Commentary

“This morning, the rand is again trading towards the lower end of the recent trading ranges, although this in itself appears positive… The local economic outlook remains somewhat bleak, even as the long-term prospects for Eskom’s survival remain precarious. On the international front, the UK parliament has rejected a bill for a no-deal Brexit. The focus will now be on the US data expected tomorrow…”

Fin24 – Local Bourse Closes Softer As Markets Seek Direction

“The JSE closed weaker on Thursday as markets paused while awaiting fresh clues from the ongoing trade talks between China and the USA… and held steady in today’s session as it traded mostly flat. This was also supported by the lukewarm US dollar which was range bound within a narrow trading range.”

05 April 2019

Reuters – Trump Says US-China Trade Deal May Be Reached In Four Weeks

“The two countries are engaged in intense negotiations to end a months-long trade war that has rattled global markets, but hopes of a resolution soared after both sides expressed optimism following talks in Beijing last week.”

“We’re getting very close to making a deal. That doesn’t mean a deal is made, because it’s not, but we’re certainly getting a lot closer.”

MoneyWeb – What Happens After May 8?

“The first half of 2019 was always going to be noisy… There is a lot of political campaigning ahead of an election… a deteriorating fiscal situation and Moody’s keeping a watchful eye, it has arguably been far noisier than anticipated… Yet the second half of 2019 is where the risk sits.”

What we think

 

Last week we wrote that “we’ll keep it simple, with our view for the following 3 scenarios for next week:

No downgrade or change to outlook: ZAR rallies, with the first target being 14.20, followed by 14.00
No downgrade, outlook to negative: ZAR rallies, with an expected range of 14.20 – 14.50
Downgrade: ZAR sells off, with a first target 15.00; overshoot could re-test September’s high of 15.70, before recovering somewhat.”

We’re happy to say that the first scenario came to pass, allowing the Rand to spend most of the week in a 14.11-14.22 range. It feels like there’s a bit of an arm-wrestle going on now within this area of consolidation and it remains to be seen whether the ZAR-bulls or -bears prevail.

Indeed, even on the Currency Partners dealing desk, we are split in our view! As such, our range for the week is 14.00-14.40.

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Have a great weekend!