Market News 19 June 2020

What we know

 

Markets have been on edge for the most part of this week, concerned that a second wave of coronavirus infections could disrupt society and the global economy once more. On Monday, the local session started with the Rand opening at 17.14, 19.19 and 21.38 against the USD, EUR and GBP respectively. The Rand reached a best level of 16.90 on Tuesday but failed to consolidate below the 17.00 level. Subdued trading activity and thin liquidity kept the Rand trading within a range of 17.08 – 17.29 against the USD on Wednesday.

Easing of Level 3 Restrictions

On Wednesday evening, President Cyril Ramaphosa announced further easing of the lockdown restrictions. The easing of these restrictions will allow some half-a-million people in the affected industries to return to work. For further detail, please refer to the article ‘Hairdressers, restaurants and casinos to open – but will consumers bite?’ below; however here are some of the changes:

1. Restaurants will be able to open for sit-down meals
2. Personal care and beauty, including hair salons, are reopening
3. (Some) sport is on the cards
4. Accredited and licenced accommodation will be open
5. Conferences and meetings for business will be permitted
6. Casinos will be permitted

While this is good news for the local economy, South Africa Inc. remains in a vulnerable state and it will take time for consumer activity to pick up again. If one looks at the Apple mobility data for South Africa below, it is interesting to note that you can already see a steady increase in activity since the start of Level 4 in May.

On the global front the dollar index appreciated to 97.3 (up 0.39%) on Thursday as investors sought out safe-haven assets after data showed that US jobless claims remained high. The Rand gave up 1.62% against the USD and ended Thursday’s session on 17.45. The ZAR lost 0.55% against the British Pound, this after the Bank of England left the key bank rate unchanged at 0.1%. The bank also announced that it would expand its bond-buying programme by £100 billion.

Further pressure on the ZAR

We started this morning’s session with the Rand at 17.45 against the USD and at the time of writing we are trading marginally better at 17.37. Markets continue to focus on the renewed threat of the coronavirus and will also be looking for some direction from the Fed speakers later today.

 

What others say

15 June 2020

Zero Hedge – The Pandemic Moonshot: Printing Money Until The Cows Come Home

“It is easy to see why. Any attempt to seriously reduce outstanding central bank credit will bring about the very situation QE was intended to prevent, i.e., falling asset prices and an economic bust. Seemingly no-one in officialdom ever stops to ask why that should be so. What happened to “self-sustaining recoveries” and “achieving escape velocity”? Could it be the economy is neither a perpetuum mobile nor a space ship?”

16 June 2020

Business Maverick – Staring into the bottomless global government debt hole

“The Financial Times now puts the developed economies’ government debt burden as a result of Covid-19 at $17-trillion. Pew Research quantifies total US federal debt as more than $24-trillion.”

17 June 2020

Fin24 – Hairdressers, restaurants and casinos to open – but will consumers bite?

“Chief economist for IQ Business Sifiso Skenjana said there would certainly be “depressed demand” from consumers, off the back of the “cultural shock” of social distancing. But this does not mean there will be no activity.”

18 June 2020

Bloomberg – South Africa Seeks $87 Billion for Decade Long Building Boom

“South Africa’s government told asset managers and banks it needs 1.5 trillion rand ($87 billion) of infrastructure investment over the next decade, the country’s biggest specialist fixed-income fund said.”

19 June 2020

Business Live – What investors think of the BOE’s response to the pandemic

“The BOE was among the first major central banks to act in response to the crisis, cutting rates twice in March before the government shuttered most of the economy. It restarted its bond-buying programme and said repeatedly — including on Thursday — that it stands ready to do more if necessary.”

 

What we think

 

Last week we wrote that “We refer you again to the chart in the previous section and in in particular the three horizontal green lines. The first range is 16.80 – 17.25/17.30 which coincides with the forecast we had for this week – this continues to be our range for the week ahead. Beyond this, we favour a return to 17.80, notwithstanding the first target in the face of further weakness would be 17.40.”

Yesterday we saw the USD break through the upside of the consolidation that began around 11 June 2020, which lead the USD to print a high of 17.50 against the ZAR. With the current momentum in play, we continue to favour a move towards 17.80. In saying that, should we see the ZAR strengthen, USD support lies at 17.10/17.25 respectively.

Our range for the week ahead is therefore 17.10 – 17.65.

 

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Have a great weekend!