February 16, 2018

Currency News

Congratulations and good luck President Ramaphosa!

Congratulations and good luck President Ramaphosa!

What we know

After an incredibly drawn-out final saga, we’re glad we won’t be needing to use the Z-word for some time, as the former president finally spared us from further gibberish and lies at around 23h00 last night.

It certainly was a fascinating week, with the country waiting for THE NEWS with the type of unity that usually accompanies a Soccer or Rugby World Cup.  From negotiations late into the night, mixed messages from within the NEC, raids and arrests in Saxonwold, moves for a motion of no confidence, the resignation announcement and Cyril being sworn in this afternoon, the sense is that the change required for this country to at least have the opportunity to move forward, has finally arrived.

The ZAR certainly did react as the situation developed, with the occasional sharp move stronger or weaker, depending on the latest piece of news or rumour.  However, the bias did always feel in favour of further ZAR gains and as a result this morning did see new best levels for the ZAR, albeit that lows levels (for now) were not sustainable.

The other positive for the week was the lower than expected unemployment figure which declined from 27.7% to 26.7%.  It’s certainly positive, but clearly this will remain a key item for the new leadership to address in the coming months and years.

Elsewhere, US inflation did finally starts signs of picking up yesterday and today; however, after the USD initially rallied in response, the green-back was knocked 1.8% from its highs to trade close to 30-month lows once again.  This price behaviour certainly surprised market participants, ourselves included, with many searching for an explanation to what appeared a counter-intuitive move.  One suggestion is that if the USD is in the late stage of the cycle, economic growth may soon start slowing, with future rate hikes therefore becoming a burden sooner rather than later.  This may be a case of “fitting a story to justify the moves” but is nonetheless worth keeping in the back of one’s mind.

What others are saying

12 February 2018

RMB Global Markets Daily: Waiting for Zuma, fearing inflation

“Rand movements have become increasingly correlated with the overnight US equity market performance, but sensitivity remains low. We still see risks that this could change if equities take another massive pummeling. Risks of another collapse are reducing as time heals all wounds

12 February 2018

Fin 24 | Budget 2018 SA economy high on Zexit euphoria but budget will be real test – economists

“While Kruger and Mondi argued that Gigaba has lost credibility, political economist Daniel Silke said the current finance minister is likely safe, at least in the short term.”

Kruger said despite the slow progress in convincing Zuma to leave, the markets believe that it will happen. “It believes this is going to happen,” she said. “The markets are convinced the ANC has made the decision.” Read More here

Business Live – Economy WATCH: What a stubborn Zuma means for SA’s economy

“Zuma’s recall had been priced in to a large extent, but once the announcement was made there could be a knee-jerk reaction that could push the local unit below R11.80/$.”

14 February 2018

The Citizen | article : Guptas plan to strike deal with haws, will Duduzane do the same?

“Sources close to the Guptas with knowledge on the raids, the news website spoke to, said moves were under way to get some sort of deal signed with the priority crime unit. Ahmed Gani, the Guptas’ lawyer, confirmed that he would meet the Hawks.”

News 24 | Report: With Ramaposa anointed president, what will happen to Gigaba?

“Stability can only be shown if the minister of finance isn’t chequered… it would be naïve to believe he’s a chameleon and can change his colours,” said an economics lecturer at the University of Witwatersrand

“There is a lot of positive sentiment as the markets prepare for a new presidency they perceive as pro-business,” Krugel said. However, she cautioned that structural challenges remain and that the new leadership has to address this to keep positive sentiment going.

15 February 2018

PoundSterling Live| article: GBP/USD Tumbles, then Surges in Response to US Inflation Data

“Pound Sterling has staged an impressive recovery against the US Dollar over the past 24 hours. What’s behind the move?”

Bloomberg | News: Ramaphosa Faces Challenge to Rejuvenate South Africa After Zuma

“Zuma was a president who throttled the soul of our nation for the past nine years,” said Prince Mashele, a political analyst at Pretoria-based Centre for Politics and Research. “South Africans, I have no doubt, must be feeling a great sense of relief, finally, to get a resignation from him.”
Read More here

Eye Witness News | Source: Radio 702 audio


University of Pretoria’s Mpumelelo Mkhabela says “Ramaphosa has no excuses as the ANC president and needs to move quickly to restore the integrity of the ANC.”

News24| Columnists: 10 things Ramaphosa should do immediately. Read  (Sneak preview – it involves firing a lot of people!)

Moneyweb | Economy Article: SA seen as world’s second miserable economy

Rising prices are more of a threat to the global economy this year than joblessness, according to Bloomberg’s Misery Index, which sums inflation and unemployment outlooks for 66 economies.

What we think

It was telling on Tuesday that, during his final “I won’t resign” interview, the market barely moved at all, as if to say that at last, this man was irrelevant, his words held no sway and that he was gone – he was simply in denial.  The currency had moved on already, looking past his deeds and failed legacy, towards a more optimistic future for the country. (One that involves Cyril and Trevor having early morning jogs together!)

President Cyril Ramaphosa running

We think the market has rightfully priced in the political good news, as we have reached the end of a horrible political chapter.

We do however believe that the market’s attention needs to now shift to:

  • The new Cabinet:  to what extent does Cyril replace the rotten wood, bearing in mind the balance between unity and sending the right message to the country and investors?
  • The Economy:  we know things remain dire (a slight bright light with the improved unemployment figure yesterday) and we’re hopefully now at the start of really addressing this and the related socio-economic issues.  In this regard, next weeks Budget, and any resulting comments from the ratings agencies, are obviously key.
  • Elections 2019:  by default there will be uncertainty and politicking over the coming 12 – 15 months – the extent thereof and how the balance of power in local politics shifts (policy pronouncements, coalition agreements, the response of Unions, etc.) will determine how averse or otherwise investors hence expectations of rate hikes coming sooner and/or more frequently than previously thought) would help the USD recover, with the ZAR.USD cross weakening as a result.  Although yesterday’s inflation figure was slightly higher than expected, this remains difficult to predict.

While we are not outright bearish on the ZAR, all things considered, there is simply too much uncertainty around, as well as numerous challenges, for us to not be in favour of continuing to externalise funds at these levels.  We would reconsider this view at around 12.00 on the ZAR.USD.

  • are towards long ZAR positions.
  • US inflation/interest rates: irrespective of the above, signs of inflation in the USD economy (and

We join all other South Africans today in celebrating this change, congratulating President Ramaphosa on his appointment and wishing him all the best for his tenure.  May everyone benefit from positive growth and development in the coming months and years.

Have a great weekend!