July 18, 2022
MyCURRENCY News | Week 29 2022
What we know
There appears to be light at the end of the tunnel – loadshedding has started to wane as Eskom employees have started to return to work and ease some of the burden on the system. The USD is also playing a supportive role this morning, finally giving up some of its gains after enjoying a massive run, most notably against the EUR. The landmark of EUR/USD parity, or a rate of one to one, was achieved last week and crossed down briefly to as low as 0.9952. The first time it has done so since December 1999! The USD is now trading just shy of 2% weaker from the lows at €1.0136/USD.
Last week’s news cycle was rather bleak for the Rand. We had extraordinary news out of the US as their CPI flew through the roof on Wednesday all the way up to 9.1% YoY – this had the Rand unable to decide if it was coming or going, alternating between R17.17/USD and R16.86/USD in the space of a few hours. It’s quite a strange position to be in with US inflation now bounding ahead of South Africa’s; it hurts the attractiveness of SA’s ‘carry trade’ with more interest rate hikes expected out of the Fed.
Oil prices are starting to consolidate around the $100/barrel range, though we all would welcome a dip back down to $80/barrel along with a stronger Rand. We are allowed to dream once in a while.
Sasol has had to declare force majeure and cannot honour deliveries of its product since logistical issues have hampered delivery of oil to its refineries. This may be a bit of a wet blanket for those that were hoping for some relief following the avalanche of fuel price increases.
What others say
Bloomberg – Sasol outage means all South African oil refineries are now shut
“Natref, a 108,000 barrel-a-day plant, was forced to shut after the late oil shipments, the company said in a statement. “Sasol Oil will not be in a position to fully meet its commitments on the supply of all petroleum products from July 2022,” the firm said.”
Financial Times – The era of the Great Exasperation arrives for investors
The horror show in stocks is dragging on to its third consecutive quarter, and the stories fund managers tell themselves to try to understand the world (“narratives”, to use the grander term) are just constantly failing to stick. Rabobank describes it as “the maddening market pendulum”.
Medium – How to read annual reports as swiftly as Warren Buffett
He considers most of the annual report as a marketing tool and recommends that you study the footnotes.
I believe the reason for this is that the financial statements and footnotes are written by third-party auditors while the rest of the annual report is written by the company’s investor relations team.
Visual Capitalist – The $100 Trillion Global Economy in One Chart
“Although growth keeps trending upwards, the recovery that was expected in the post-pandemic period is looking strained. Because of recent conflicts, supply chain bottlenecks, and subsequent inflation, global economic projections are getting revised downwards.”
What we think
Last week we said that “It is worth noting that the Rand is starting to look extremely oversold. The USD-ZAR has a significant overvaluation to unwind. Although this may not be imminent, it means that the asymmetry of the risk profile of holding a long USD position from current levels is high and rising.”
At least in the relative short-term, the Rand is looking a little more palatable at these levels with the possibility of a small relief rally if Eskom can keep loadshedding in check. This of course assumes no other tricks up the sleeves of any of the many other union leaders who might want to fight for the now standard inflation beating 10% increase.
This week Wednesday sees SA release its inflation numbers for the past month which will be well scrutinised by our fearless central banker, Lesetja Kganyago. Kganyago presents on Thursday where we see how much more we will be paying for our bonds – expectations are for a 50bp hike with some outliers calling for 75bp, although unlikely given the measured approach our governor has adopted and implemented during his tenure.
Our range for the week: R16.80/USD – R17.20/USD.
Have a great week ahead.