November 15, 2019
What we know
For those of you with very little time on your hands today, the tldr (you may need to google that if you’re over 30) version of this weekly is: very little happened, the ZAR.USD traded in a 14.76 – 15.00 range and the status quo remains.
With Monday a USD holiday due to Veterans Day, we were on the back-foot in a quiet session as technically the ZAR looked as though it needed to retest the 15.00 level we had seen just prior to avoiding the Moody’s downgrade two weeks ago. That set the tone for the rest of the week as a 14.80 – 15.00 range was firmly in play and, encouragingly, two tests to weaken through the 15.00 level failed emphatically. As of this morning we’re trading at our best levels, albeit struggling for the time being to breach 14.76.
The main news story locally was of course the unfolding SAA saga, with industrial action scheduled for today and tomorrow. Minister Gordhan has however upped the ante, suggesting that the airline is not too big (or important) to fail – one would expect global investors to be in favour of such rhetoric.
Elsewhere news was seriously lacking, with commentators really struggling to fit stories to the moves they had to explain. Very briefly:
• Continued protests and violence in Hong Kong weighed on Asian markets;
• Last week’s rumours of trade war progress were (again) snuffed out by Trump;
• UK GDP growth disappointed;
• The NZ central bank surprisingly did not cut rates, allowing the NZD to rally;
• Australian unemployment was higher than expected, increasing the probability of a rate cut in early December, leading to AUD weakness;
• SA Mining Production exceeded expectations, while Retail Sales were very poor.
What others say
11 November 2019
Reuters – Dollar, stocks slip amid trade deal uncertainty
“Trump said on Saturday that the U.S.-Sino trade talks were moving along “very nicely” but more slowly than he would have liked. He also said there had been incorrect reporting about U.S. willingness to lift tariffs.”
12 November 2019
MoneyWeb – SEOs’ results proof of massive problems
“This is the third time that Moneyweb has compiled a summary of SOE results, and this year’s figures show a marked decline. The performance of nearly all of the companies worsened, with Eskom the biggest culprit with its loss of more than R20 billion. PetroSA, the Post Office and Prasa also posted significantly bigger losses.”
13 November 2019
Bloomberg – Powell is Key for Traders Keeping One Eye on Impeachment Hearing
“After policy makers cut rates last month at the third straight meeting, investors are looking for confirmation that Powell sees the economy on solid enough ground to pause in December. U.S. President Donald Trump weighed in again Tuesday in a speech at the Economic Club of New York, slamming the central bank’s shunning of negative interest rates as bad for the U.S.”
14 November 2019
Business Maverick – SAA censured as it pleads financial dire straits ahead of strike
“The cost of a strike is in excess of R50-million per day, not including impact on confidence… I have to say we are at the precipice now with the threat of impending strikes,” SAA board member Martin Kingston told MPs.”
15 November 2019
MoneyWeb – Is another global recession on the horizon?
“Whatever happens with the German economy – whatever action its government takes, and however different from the South African economy it maybe – the declining German economy, which is possibly in recession, offers a lesson:
An export-reliant economy is highly exposed to cyclical global trade, the slowing growth of the world economy, and can often be the loser in trade wars occurring elsewhere”
What we think
Last week we wrote that “our base case is now that the ZAR should largely trade in a 14.70 -15.20 range over the next few months. The only major positive catalyst we see as possible is a reduction or end to the trade wars…..still, this is what we call a known unknown and as such it’s hard to incorporate into a base case forecast.
Rather, we are focusing on the fact that we will see a poor Budget announcement in February and that there is a strong possibility that junk status may follow. Should that happen, we believe that last years highs of 15.70 would be reached, after which we would anticipate a slow recovery. Between now and the end of February, however, we believe the odds favour a drift towards the recent highs of 15.20.”
Nothing whatsoever has transpired this week to change our minds with regards to the above. Similarly, our range for the week remains unchanged at 14.70 – 14.95.
Have a great weekend!