August 01, 2022
MyCURRENCY News | Week 31 2022
What we know
Traders seemed to work themselves into a bit of a frenzy ahead of the Fed’s interest rate decision last week, pushing the dollar stronger against the Rand and causing a fair bit of panic on the part of us South Africans. The concern is always that ‘they’ (the market embodied) know something we don’t and there is a scurry from domestic traders to explain away the moves – even if there isn’t what we believe to be any fundamental substance behind said move. Quite often, the simple adage of ‘buy the rumour, sell the fact’ goes a long way.
The other big news event of the week was US GDP that came out the following day on Thursday – and oh boy, did that get the Biden administration squirming. US GDP missed expectations of 0.5% growth by -1.4%, coming in with a final print of -0.9% and confirming a technical recession (two consecutive quarters of GDP contraction). Bidens team of economists were scrambling to defer blame and redefine what a recession is given how bad this may make the Democratic Party look. It doesn’t paint your administration in a good light when the government tries so hard to change definitions in order to pedal a narrative, but I digress. Regardless of what definition you use, this is a big knock for global sentiment and will certainly be a key factor driving investment and currency movements.
South African’s will finally catch a break this month with global oil price declines filtering through to the consumer – though, there is hardly ever any give without a little take and this time it comes as the ANC revives its proposal to introduce a wealth tax on the top 5% of South African earners. It is bewildering that this type of policy can even make it to the table in the first place and that more if not all the focus is not placed on actually delivering on the government’s transformative policies to spur growth and job creation. The most startling response to the wealth tax has been a counter to rather raise VAT to 17%.
What others say
News24 – ANC mulls wealth tax to fund income grant
“The proposal, which was first mooted at the ANC’s national conference in 2017, calls for an appropriately structured wealth tax, possibly linked to a land tax, to promote equity and raise revenue, the newspaper said. The target should ideally be the top 5% of high net worth individuals, and estates with significant assets, Kubayi is quoted as saying.”
IB Times – Russia supporters use Crypto to fund Kremlin’s Ukraine invasion; Over $2M BTC, ETH donated
“In the ongoing war between Ukraine and Russia, many have used cryptocurrency to send donations to Ukraine. Interestingly, pro-Russia groups and supporters have used the same means to deliver financial support to the Kremlin, a recent report has claimed.”
Bloomberg – China’s rebound remains fragile as factories, property slump
“China’s factory activity unexpectedly contracted in July while property sales continued to shrink, highlighting the fragility of the economy’s recovery amid sporadic Covid outbreaks and adding to calls for more policy stimulus to fuel growth.”
Reuters – China warns its military will ‘not sit idly by’ if Pelosi visits Taiwan
“The latest warning was issued during a Chinese foreign ministry regular briefing. Spokesperson Zhao Lijian also said that because of Pelosi’s status as the “No. 3 official of the U.S. government”, a visit to Taiwan, which China claims as its own, would “lead to egregious political impact”.”
What we think
Last week we said that “compared to last week’s ECB meeting, there appears to be more limited scope for a surprise in each direction at this month’s FOMC and we, therefore, expect market volatility to be impacted less this week.”
Fortunately, the US interest rate came in as expected at an increase of 0.75%, matching our own rate hike of the previous week. This meant that the SA bond carry trade was held in tact, and after the initial USD rally prior to the announcement, the Rand began the slow march stronger on Wednesday and was bolstered by the poor GDP number out of the US. We were able to reach as low as R16.3907/USD on Friday 29/07/2022.
As they say, ‘the trend is your friend’ as it continues to fight the USD and develop a new level below R17.00/USD. We most certainly need it right now after the poor showing we’ve had over the past month. Though, it always remains important to remember that the Rand never moves in a straight line and that any rally will have its own share of pullbacks.
The big event this week will be the US unemployment and Non-Farm Payrolls (NFP) on Friday with most market impetus before that coming from OPEC discussions, global recessionary fears and any progress on the Ukraine-Russian front.
Our range for the week: R16.25/USD – R16.70/USD.
Have a great week ahead.