Market News 24 January 2020

What we know

 

It was a tale of two halves this week. Having opened up at 14.45 on Monday, we tested 14.60 on Tuesday morning and while there was a short tussle around the level for a couple of hours, the resistance encountered prompted a nice rally which saw us hit the best levels of the week of 14.27 early yesterday.

The main story for the week was the coronavirus outbreak in China and the scramble to establish the extent to which this may present a global threat. Markets reacted with predictable nervousness, with equity markets and emerging market currencies retreating in response. As things stand, while WHO has not yet declared the outbreak to be an international public health emergency, the threat clearly remains and we would certainly expect significant updates and developments over the weekend. The ZAR did outperform its peers on the week – perhaps some viewed us a relatively safe option within the emerging market space, as we gained 0.6% compared to losses in the 0.2% to 1.1% range.

Davos was in the spotlight as it is every January – anyone watching the Bloomberg channel this week is surely very tired of watching the talking heads in their winter best, having their say in the endless procession of interviews. Given the current global zeitgeist, we don’t think we’re going out on a limb by saying that for many, this parade of politicians, financiers and billionaires, is something of an irritation rather than a source of hope for improved collaboration and action to improve global growth and equality.

The “Impeachment of Donald J Trump”, as CNN likes to label the prime-time show, also provided some interesting viewing during three marathon sessions. While the odds are still massively in favour of the president not being recalled and convicted, the evidence on display suggesting at least some guilt, does make one question how on Earth the two-party system, with its utterly insane display of partisanship, can ever really see big issues be resolved with clear, rational and unbiased minds. We may point at shout at South Africa’s political malaise; yet these hearings seem as farcical as some of the displays we’ve seen in our parliament.

Economic news was fairly low-key: Japan and the EU kept rates unchanged, the UK and Australia saw some positive employment number, while SA’s inflation came in as expected.

 

What others say

 

19 January 2020

Bloomberg – Some Strategist Say Get Ready for ‘Peak Decade’

“Strategists at Bank of America Corp. are already telling clients to brace for a “ground-breaking ‘peak decade’” that will disrupt business and investing. Ian Bremmer, a delegate at the World Economy Forum’s annual meeting and founder of Eurasia Group, describes this year as a “tipping point.”

21 January 2020

MoneyWeb – Here’s what market watchers are saying about the virus spread

“Risk assets from Hong Kong and Chinese stocks to the Korean won tumbled, while havens such as the yen and Treasuries climbed following reports that multiple medical workers have been infected by the virus and the death count grew to four people. The moves come as hundreds of millions of Chinese prepared to travel across the country and globally for the Lunar New Year and a day after Moody’s Investors Service downgraded Hong Kong by one notch due to the ongoing political turmoil there.”

22 January 2020

Business Maverick – Hey, sitting ducks: Eskom wants another R27-billion from you

“Eskom appears set to earmark 2020 as the year in which it will fight to recoup its stratospheric losses from cash-strapped consumers. In February, hearings begin in which Eskom will petition the national electricity regulator, Nersa, to recover from consumers an additional R27-billion in costs incurred in 2019.”

23 January 2020

Bloomberg – Bailout Delay Leaves South African Airways on Brink of Collapse

“The National Treasury agreed last month to give the airline 2 billion rand ($140 million) as part of the terms of its bankruptcy protection, but has yet to follow through. SAA cancelled 38 flights this week to save money and warned that further cuts may be in the offing.”

24 January 2020

Fin24 – Mboweni: Investors at Davos most worried about Eskom, fiscal sustainability

“Speaking at a press conference at the WEF, Mboweni said the South African delegation had nonetheless had “many fruitful conversations” with potential investors.”

What we think

 

Last week we wrote that “we again suggest that there are simply too many domestic concerns on the horizon… As such we conclude that we struggle to see a case for the Rand maintaining current levels, let alone strengthening from here”.

We reckon this may have been our best week for some time in terms of our call on the trading range, as our 14.30 – 14.60 played out almost perfectly with touches at both ends. It must be said that the ZAR fight-back was quite encouraging; albeit that this did occur on the back of a slightly soft USD. Given our ongoing concerns as the budget and Moody’s loom nearer, together with the Dollar seeming to have stabilised, we believe the odds continue to favour the ZAR drifting weaker.

Our range for the week ahead is 14.30 – 14.60.

 

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Have a great weekend!