August 19, 2021
Market News 10 August 2021
What we know
Regular calls and expectations about a Cabinet reshuffle are a storm in a teacup or, as Shakespeare put it in Macbeth, “Life is a tale told by an idiot, full of sound and fury signifying nothing.” Such is the fate of the spectacle of cabinet reshuffles in our beloved country.
As usual, the President’s Cabinet reshuffle announcement at the end of last week was widely and wildly anticipated. By the thickness of tension in the air and the usual noisy pro-republic demeanour of South Africans, a Martian could be fooled to think that Cabinet reshuffles were a serious act of reform, statecraft or even patriotism. With the bar set far too frustratingly low, we can’t help but ask: are the right people in the right roles to lift potential growth? That is a hard question to answer. Were the best available people in SA brought in? No. Was that possible? No, not under the current political rules. This is where the bar ends up on the floor — the tyranny of low expectations.
One day in the future we will be in a place where whoever the minister is does not particularly matter — corrupt minister, incompetent minister, investor-uncertainty stoking minister — because a decent director-general and civil servant team in each department would be a bulwark against the crazy merry-go-round. We are, however, definitely not there in almost all departments. As such, who the minister is probably does matter at this point.
When we stand back from this reshuffle, we see the broad status quo: a range of sub-par ministers who have been shuffled from one portfolio to another due to a lack of better options.
What others say
Bloomberg – In a risky world, the road to safety leads to the US dollar
At the moment, the dollar is moving in the opposite direction of Treasury yields. This could signal a return to last year’s popular trade, but in the opposite direction. Back then, investors pulled out of bets on the currency rising while yields gradually moved higher in anticipation of an economic reopening. This time, however, the dollar is seeing renewed interest and yields are falling.
Daily Maverick – South Africa a step closer to a super Presidency after Ramaphosa’s master class in consolidating power
But it’s understood that the Cabinet was rocked to its core by that security lapse in July. Many commentators and ANC stalwarts like Mavuso Msimang acknowledge it was at least in part instigated from within the governing ANC.
Coin Desk – The US Senate goes to war over crypto taxation
The whole thing started last week when legislators added new reporting requirements for cryptocurrency brokers as part of the “pay-for” of the infrastructure bill. But the language was so broad and flawed it could have roped in cryptocurrency miners, software developers and other entities who are clearly not “brokers” in any meaningful sense. To be clear, the objection to the provision wasn’t that it would impose taxes on crypto, but that the reporting requirements were technically flawed.
IB Times – US Democrats unveil massive $3.5 trillion spending blueprint
The budget resolution “will be the most consequential piece of legislation for working people, the elderly, the children, the sick and the poor since FDR (President Franklin Delano Roosevelt) and the New Deal of the 1930s,” said independent Senator Bernie Sanders, chair of the Budget Committee.
What we think
The market’s discomfort with the executive shake-up is still lingering into the opening session after the long weekend, as reflected in the sell-off the Rand to 14.69/USD late on Friday, followed by another 0.70% depreciation to around R14.7500/$ in thinned-out trade yesterday. The ZAR’s recent decline also coincides with a broader rotation out of relatively higher-risk currencies and into a surging USD after strong US labour market data fanned Fed taper talk.
The unambiguously positive jobs report saw the dollar enjoy some modest gains – particularly against the low yielders – firming up the view that the Fed would be in a position to announce tapering of bond purchases later this year. One of the big questions for markets, however, is whether a well-flagged and gradual tapering could still upset asset markets.
A litmus test here may be Wednesday’s release of US July CPI, expected to peak around the 5.3/5.4% year-on-year area. Any higher, especially if the core were to surprise on the upside, could suggest that the Fed’s exit from loose policy may not be quite as relaxed as most think. So, US CPI will be the key event risk in an otherwise quiet week for markets.
With a Fed inching towards the exit and the risk environment a little fragile, we would say the dollar can stay bid this week. A better performance in some of the emerging market high yielders may need to wait until the CPI event risk has passed.
Our range for the week is 14.55 – 15.00.
Have a great week!