26 April 2019

What we know

 

The Easter weekend was a festive period for most, filled with over-indulgence and quality time with loved ones. We saw the ZAR trading in a relatively narrow band leading up to the break.

The resilience of the Rand was broken on Friday, however, following reports of an emergency R5bn government bailout provided to Eskom in early April. Not the type of surprise one typically associates with the weekend.

This, combined with a dominant USD, lead to a gradual weakening, with the ZAR.USD moving from around 14.05 at the start of the week to 14.54 by Thursday afternoon. However, we did see a fightback that triggered a Thursday afternoon move back to the 14.35 levels.

Major data points this week included:

• Weaker EU Consumer Confidence (also lower than forecast);
• RSA Q1 Consumer Confidence coming in better than expected, but down from the previous quarter;
• RSA PPI figures coming in better than forecast and better than last year;
• US GDP figures released today – 3.2% growth in the first quarter, up from 2.2% at the end of last year and ahead of analysts predictions of around 2%

Further, there has been an overall weakening in emerging market currencies, with the MSCI EM performance down 15.8% over the past five days. The Rand followed the EM trend, with its continued weakening being the longest streak of daily losses in the past two years. Not the most comforting news given we were trading sub-14 only a week ago.

 

What others say

 

23 April 2019

Business Tech – What Shook The Rand

“The rand was enjoying a gradual rebound in the last week – but this was reversed by Tuesday (23 April), after news of an unexpected and emergency bailout to Eskom hit the market.”

“The news, which came over the extended long weekend for Easter, sent the rand from its sub-R14 levels of R13.93 to the dollar to R14.20, before settling at around R14.17.”

Fin24 – Eskom Bailout Puts Rand Under Pressure

“The last-minute bailout of SA’s power utility, the local currency would face pressure from the US scrapping waivers for Iranian crude oil purchases, which will likely strain sentiment across emerging markets.”

24 April 2019

Investec Morning Report

“…there really is nothing to drive the ZAR positively at the moment with local data mixed at best, and struggling to gain traction, local politics far from settled, the event risk surrounding the elections keeping investors circumspect and the global economy experiencing some uncertain risk events”

MoneyWeb – Banks Take A Hit As Rand On Back Foot

“Stocks in the financial sector plummeted on Wednesday as investors winced at a weakening rand against the dollar, a drop in consumer confidence and another government bailout for state power utility Eskom.”

“…Additional funding for Eskom creates an image of a government that remains beholden to a utility that has resorted to rolling blackouts to juggle a fleet of power plants that need repair, while mired in corruption allegations following numerous government probes.”

25 April 2019

RMB Global Market Research

“The Rand is among the worst performing EM currencies tracked by Bloomberg, only second to the Argentinian peso in terms of negative spot returns as non-residents purge themselves of rand-denominated stocks and bonds.

This appears to be a generalised sell-off, with the jump in the oil price stocking fears about oil-importing economies battling external vulnerabilities.”

Daily Maverick – It’s The Unemployment, Stupid

“…There is now some evidence that most voters don’t believe any particular party can resolve this crisis. That alone has important implications for our society.”

“Obviously, the issue of jobs is tied very closely to the question of poverty reduction – resolving one would presumably lead to the partial resolution of the other. It might be then that most South Africans do not believe any political party is actually capable of solving the poverty problem.”

26 April 2019

Nedbank Daily Market Commentary

International markets saw the major currency pairs continue to perform poorly against the USD. The EURUSD traded from a high of 1.1222 yesterday, and this morning, it is currently trading at 1.1155. The GBPUSD has been trading on the back foot because of the ongoing Brexit saga, and this morning, it is currently trading at 1.2904.

The Rand has traded progressively weaker over the course of the past week, after having reached a best level of 13.8725 earlier in the month. This has been exacerbated by an apparent lack of liquidity as potential USD sellers remain, unsurprisingly, on the side lines.

Reuters – RMB Exports, Inventories Seen Boosting U.S. First-Quarter Growth

“With global growth still sluggish, the surge in exports is likely to reverse and the inventory build will probably need to be worked off, which could curtail production at factories. That could restrain growth in the second quarter.”

“Trade tensions between the United States and China have caused wild swings in the trade deficit, with exporters and importers trying to stay ahead of the tariff fight between the two economic giants.”

What we think

 

Last week we wrote that “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).”

We see that the sentiment mentioned has clearly been overshadowed by the fears building up to the election. Our view thus does not remain identical – we still believe that ZAR gains are unlikely until the May elections, and a continuing weakening pattern is probable.

The negative news from the government seems to has sparked a large base swing in outlook, with many looking to hedge some risk moving into next (and only) major risk event – the May 8 elections. On that note, our range for the week is 14.20 – 14.60.

 

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Have a great weekend!