Market News 27 March 2020

What we know

 

I’m sure you’re all okay with a truncated commentary, as we adjust to the new reality of the next few weeks.

Despite the announcement of our own lock-down and the obvious implications this will have for society and the economy, the ZAR was fairly steady against the USD, and the more noticeable price action came against the GBP and EUR. From a high of 17.88 on Monday morning, we recovered all the way back to 17.20 by late Wednesday, and it’s felt like there’s been a little bit of consolidation between 17.30 – 17.55.

This is in contrast to more significant losses against the GBP and EUR which rallied 7% and 3.5% respectively against the USD since their Monday lows. As such, at the time of writing, the ZAR has lost 4.2% vs the GBP and 2.7% vs the EUR this week.

Given how elevated volatility remains, it is indeed very difficult to make clear links between cause and effect; however, it could very well be the case that the market is pricing in the fact that the US is now being considered to be the epicentre of the pandemic at present.

In trying to find a bright spot amid all of this, the general consensus is that the SA government has taken the right and decisive action in implementing our lock-down. Unity among the various parties seems to be the prevalent tone at present, while the private sector is doing its best to try and step up at this time of crisis.

Indeed this has largely been the trend world-wide, as governments have felt compelled to do what they feel is best for their citizens. While populism, libertarianism and anarchism have become increasingly appealing to many who are fed up with the way modern politics is conducted in a globalised world, this truly is a time for governments to fulfill their roles and collective duties. This is not a moment to debate civil liberties, freedom of movement and complain about Big Brother, but rather to stay out of the way to allow leaders, medics, police and armies to tackle this threat in the most thorough way possible (as I write this the headline breaks that Boris Johnson has just tested positive for the virus).

The final point for the week is the reminder that Moody’s are due to make their announcement with regards to downgrading SA this evening. While we have questioned whether they may rather choose to delay any such action at the moment, we are now moving towards a view that they simply have no choice. While the impact of such a move will be ZAR negative, given the sell-off of the past month it may be that further weakness is actually fairly muted. Perhaps it is best that we get the downgrade behind us now?

We often find that Nando’s says things best… watch the video: Nando’s ad about turning the flame off for lockdown

What others say

 

23 March 2020

BusinessMaverick – South African economy goes on shutdown

“President Cyril Ramaphosa knows the costs that will be inflicted on an already moribund economy, and any forecasts at the moment can only be a thumbsuck. The contraction will be massive – depression-sized seems almost certain – and the economy’s ability to get back on its feet will be put to a severe test.”

24 March 2020

Moneyweb – Historic Fed boost fails to stop Wall Street’s coronavirus-driven sell-off

“After recently cutting interest rates to near zero, the Fed will now lend against student loans and credit card loans, as well as back the purchase of corporate bonds and make direct loans to companies.”

25 March 2020

Reuters – Fed spigots help restore U.S. Treasury liquidity

“The Fed has been buying $75 billion per day in Treasuries and by the end of the week it will have purchased nearly $700 billion since it launched its Treasury purchase program in mid-March.”

26 March 2020

MoneyWeb – SARB steps into the bond market

“On Wednesday morning the South African Reserve Bank (SARB) announced that it would start to buy government bonds. This is a tactic, known as quantitative easing (QE), that has been used by central banks in the US, Europe and Japan for some time to stimulate their economies.”

27 March 2020

Bloomberg – China’s Economy Faces Virus Aftershocks From Lost Jobs to Debt

“The rapid decline in new cases of infections and the rebound in production has supported the yuan against the surging dollar, making it a rare exception among emerging-market currencies. But that resilience may not last long, as a global recession would be negative for the yuan since it would cut demand for Chinese exports.”

What we think

 

For the past few weeks we’ve been reluctant to forecast weekly ZAR ranges, simply because to do so with any degree of confidence would require the ranges themselves to be so wide as to be of little use to anyone!

This week we’d rather remind clients that Currency Partners will be open for business as usual and all of our contact numbers and email addresses remain unchanged. Should you have anything at all that you wish to discuss, be it setting up a new account, exchange control queries, our view on the market outlook, or just want to say “howzit”, please do be in touch!

To all of those who are “out there” performing essential services (or who have family and friends who are doing so) – those in the medical fraternity, security and defense services, and those selling us our groceries and pharmaceuticals – a sincere thank you and best wishes for a safe few weeks!

And to everyone reading this: stay safe, healthy and positive, and as always…

 

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….Have a great weekend!