April 30, 2020
Market News 30 April 2020
What we know
A very short work-week is almost done and we hope you all have your running shoes ready for tomorrow morning! While most people will be quite relieved by the relaxation of the lockdown restrictions, we are admittedly a bit puzzled that the government would decide that everyone should exercise during the same 3-hour window! Let’s hope that the slow opening up of economic activity and the increase in personal freedom will be smooth and without any major negative impacts.
It’s been quite some time since we last saw the Rand feel quite as strong as it has this week, with virtually any moves weaker quickly snuffed out before the rally continued. As a reminder, we started the week with the ZAR.USD at 19.02 and traded as low as 18.02 this morning.
We’re a bit unsure as to the reason for the strength of the rally, albeit that a number of suggestions have been put forward in the press and by market participants. While we often suggest that the true link between apparent cause and effect in currency markets can be very tenuous, the following are possible contributing factors:
– with much of the selling for the World Government Bond Index having already been done, some funds mandated to purchase lower-rated bonds may be buying SA bonds
– some positive news regarding the drug Remdesivir potentially aiding recovery from COVID-19 and countries slowly starting to reopen their societies and economies
– stock markets have rallied, increasing risk appetite and putting the search for yield higher up on investor’s priorities
Even with the above factors, the ZAR’s massive outperformance of its peers (3% – 5% with the exception of Mexico) is hard to understand.
To emphasise, these are possible contributing factors and it’s entirely possible that the ZAR is simply recovering from its recent sell-off in a volatile market – we were, after all, trading at these levels just two weeks ago! In other words it may just be market forces at play with ZAR bears taking a step back, USD bulls taking some profits and some important technical trading levels being breached. This week it seemed as though traders were rapidly targeting potential support levels at 18.75, 18.55, 18.30 and then the psychological 18.00 figure. As at the time of starting to write this the rally had stalled somewhat, moving from 18.05 to 18.20, and we now find ourselves at 18.43 – this really is not a pleasant rollercoaster at present!
What others say
27 April 2020
MoneyWeb – Europe moves to reopen
“Italy will start easing lockdown restrictions next week and Germany reopened some schools on Monday as new cases and fatalities drop in Europe. In Britain, Prime Minister Boris Johnson returned to work and urged the public not to let up on social distancing measures.”
28 April 2020
Business Maverick – The nailbiting road to economic recovery
“China’s economy, which has been the world’s first mover after exiting economic shutdown cautiously during April, is also battling. Industrial production numbers were dismal in the face of a lack of foreign demand and a local consumer market that is not yet ready to start spending on non-essential goods. Industrial production slumped 8.7% month-on-month in March — its most significant decline in the 2000s.”
29 April 2020
Reuters – Much of U.S. economy still plugging along despite coronavirus pain
“When the first gross domestic product reports of the pandemic era are issued Wednesday, the numbers will show a large hit from the virus-fighting efforts that began in mid-March. Forecasters expect anywhere from $2 trillion to $5 trillion of output to be wiped out by year’s end.”
30 April 2020
Bloomberg – S&P cuts South Africa deeper into junk as virus hits growth
“The ratings firm downgraded the country’s long-term foreign-currency rating to BB-, three notches below investment-grade, from BB. South Africa’s cost of servicing public debt will climb to about 6.5% of gross domestic product by 2023, S&P said Wednesday.”
What we think
We usually start this section by linking it to our thoughts from last week; however, today there’s not much correlation, either in terms of how this week played out, nor in terms of our thoughts going forward.
We saw a rampant Rand that seemed impervious to any selling for almost the entire week and suddenly from 14h30 this afternoon over half of that was undone. We are currently at 18.54 vs the USD and really not sure where this came from. We’ve had US jobless numbers and SA Trade Balance figures; however, this sell-off seems beyond those two data-points. We’re not going to overthink this right now, as it does seem that the only certainty is going to be continued volatility.
Our range for the week ahead is 18.30 – 18.75.
Have a great long weekend and stay healthy!