18 April 2019

What we know

 

We’re sure that many of you are already on holiday or on the verge being so! In either event, we’ll keep it short, as there really is little to talk about.

The ZAR remains directionless and range-bound as news remains very thin on the ground. As a result we spent the week in a relatively narrow range of 13.89 – 14.11 against the USD.

The main data releases were:

– Stronger than expected Chinese GDP and Retail Sales. Following last week’s stronger trade data, these releases point to Chinese economic growth potentially starting to pick up, which is a positive driver for emerging markets;

– South African CPI coming out in line with expectations, along with better than expected Retail Sales;

– A smaller than expect US trade deficit of 3.4% of GDP;

– Weaker than expected Eurozone PMI figures.

 

While none of these were necessarily massively market moving releases, on balance they should be considered net-positive for the Rand and other emerging currencies. While on the week we did underperform slightly, over one-month our gains far outweigh those of our peers, as the post-Moody’s recovery remains intact.

The only other point to note was the Business Day article regarding the issue of nationalisation of the SARB in the context of other examples throughout the world (see Investec report below).

As we reach less than 3 weeks until elections, populist rhetoric around this and other potentially sensitive issues may continue to give rise to skittishness around the Rand and should be kept on at the back of investors’ minds.

What others say

 

15 April 2019

Bloomberg – Carry Trade Lifts Emerging Markets Still On Lookout For Growth

“Emerging-market currencies are unlikely to be headed into a period of major price swings. But that’s just fine for the carry trade.”

“The dearth of volatility in foreign-exchange markets is evidence that some investors are still looking for further signs of a pick-up in global growth before adding to their positions.”

16 April 2019

Investec Morning Report

“Monetary corruption, or the manipulation of interest rates lower for short-term gain will be the death knell for the SA economy should it ever materialise. Turkey offers the latest example of exactly what monetary corruption looks like, and it isn’t pretty.”

“In a country where the ruling party is steady losing support and turning increasingly more populist to retain relevance, this is a very dangerous path to tread down. Not only has this government shown an inability to run institutions in the country’s best interests, especially when it serves a political imperative, but the allure of the printing press to a party fraught with corruption is tantamount to waving a red flag to a bull.”

17 April 2019

RMB Global Market Research

“Moody’s released the anticipated in-depth annual analysis on the South African sovereign rating. Following from the credit opinion released on 2 April, the review emphasises that our key challenge is slow growth and its corollary, persistently high unemployment.”

“This results in gradual erosion of fiscal strength and increasing government debt. SA’s debt metrics are still in line with Baa3-rated sovereigns, keeping the rating outlook stable, but debt-to-GDP will reach 65% by 2023 under Moody’s baseline scenario. Structural reforms, including the SOE sector, could raise potential growth.”

18 April 2019

Business Day – Emerging-Markets Shares and Currencies Slip On Stronger Dollar

“Emerging-market shares slipped in lacklustre trade on Thursday ahead of a long Easter holiday as they tracked a dip on Wall Street overnight, while developing currencies also lost ground against a stronger dollar.”

“Investors are becoming cautious given that most of the good news about trade and the economic data are largely priced in, but very little downside has been discounted.”

What we think

 

Last week we wrote that “we…(were)…more in agreement as to our view, believing that further gains for the Rand should be unlikely at least until after the May elections. At the same time, we believe that sentiment towards the ZAR has clearly improved and that the Rand may very well continue its recent resilience.”

We’d really be wasting everyone’s time by adding anything to the above, as our view remains identical. As such our ZAR.USD range for the week ahead is 13.90 – 14.20 (14.04 at the time of writing).

 

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Have a great weekend!