Market News 22Nov2019

What we know

 

The first half of the week was uneventful indeed, with the trading range of 14.70 -14.85 reflecting both a lack of direction as well as any significant news.

There were two main items of interest this week:

1. The appointment Andre de Ruyter as CEO of Eskom saw two main reactions: one positive, as he has a proven track record in business and his appointment seemed refreshingly apolitical; the second more skeptical, due to suggestions that turning around the failing beast may prove beyond de Ruyter’s proven skills and track record. We lean towards to the former view and suggest that the latter argument could be applied against just about any prospective candidate.
2. The MPC’s decision to leave interest rates unchanged, despite some soft recent inflation data. The reaction to this was largely positive, at least as far as the ZAR performance was concerned, allowing the currency to finally break through support at 14.70, to touch best levels of 14.59 on Friday morning. While we appreciate the argument attractive real rates (i.e. the carry trade) are the flavor of the day globally and hence the decision was ZAR-positive, we were disappointed with the outcome. Given the desperate lack of growth in the economy, combined with moderate inflation, we were hoping (admittedly against hope) that Governor Kganyago and his colleagues may have seen fit to cut rates by 25bps to give the economy some kind of a boost (if it were the author – by no means an economist – it would have been 50bps and let’s worry about inflation later!).

Globally, the more significant issues have been fairly quiet: we’re going to gloss over the non-event that is the noise surrounding a resolution to the trade wars, note that the UK election in December is unlikely to provide any surprises, and hope that things can settle down quickly in Hong Kong.

 

What others say

 

18 November 2019

MoneyWeb – South Africa junk spiral may deepen as S&P likely to cut outlook

“S&P warned in its most recent assessment in May that continued fiscal deterioration, structurally weaker economic performance and mounting external financing pressures could prompt it to lower the nation’s credit assessment. It was the first major ratings company to cut South Africa to junk in 2017 after former President Jacob Zuma replaced the finance minister with a little known lawmaker in a late-night cabinet shake-up and currently has a BB reading.”

19 November 2019

Business Maverick – No change: SARB likely to hold rates, say economists

“While the SARB will undoubtedly take note of the benign outlook for inflation, we are of the view that the SARB will exercise caution. We expect the SARB to keep rates on hold on the back of SA’s deteriorating fiscal metrics, Moody’s putting SA on negative watch and pressure on the ZAR which is seen limiting the SARB’s ability to adopt a more accommodative policy stance,”Kieran Siney, a markets analyst at ETM Analytics, told Business Maverick.”

20 November 2019

Reuters – Beijing tariff demands may expand U.S.-China ‘phase one’ trade deal significantly

“A ‘phase one’ trade deal, once expected to be completed within weeks of an October news conference between Trump and Chinese vice premier Liu He, could now be pushed into next year, trade experts say.”

21 November 2019

Bloomberg – A Tory election win is all the markets can see

“A ‘phase one’ trade deal, once expected to be completed within weeks of an October news conference between Trump and Chinese vice premier Liu He, could now be pushed into next year, trade experts say.”

22 November 2019

Business Maverick – Reserve Bank holds repo at 6.5% in close vote

“It was during the inflation outlook part of the statement which followed that the claws of the hawk began to appear from beneath the doveish veneer. CPI, in fact, slowed to 3.7% in October, its lowest in eight years, from 4.1% in September, data showed on Wednesday. This alone should have given the MPC some space to cut – its target range is 3-6%, after all.”

What we think

 

Last week we reiterated 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….Between now and the end of February, however, we believe the odds favour a drift towards the recent highs of 15.20.”

For the second week in a row, we’re marching to very much the same beat. The lower end of our range at 14.70 was broken which allowed for a test of the next target around 14.58. We suspect that rather quick move lower may have been a technical short squeeze as the best levels were short-lived and as of the time of writing we are trading just under 14.70 again. We would like to see how things play out of the next couple of days in order to be able to make a higher conviction call (further short-term gains are not out of the question and should the ZAR bulls win they may still look to retest 14.50 – 14.60).”

For the time being, however, 14.70 – 14.90 remains our range for the week ahead.

 

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Have a great weekend!