August 29, 2022
MyCURRENCY News | Week 35 2022
What we know
One of the most memorable cartoon characters is Eeyore, the perpetually melancholy donkey from A.A. Milne’s stories of Winnie the Pooh. Sitting on his own at his house on Pooh corner, his attitude more or less condemned him to continued misery. Perhaps the US Fed Chairman, Jerome Powell, missed an opportunity when he didn’t channel his inner Eeyore to greet journalists at his press conference on Friday with a cheery: “Good morning. If it is a good morning. Which I doubt.”
The build-up to the Jackson Hole symposium last week was quite tense. Market participants had spent the weeks since the July Federal Reserve meeting celebrating the “dovish pivot” and then in the days leading up to Powell’s speech, doubt started to creep in. As it turned out, for good reason. Notably, the speech was short. Powell began his remarks by saying they “will be shorter, my focus narrower, and my message more direct.” It’s hard not to think of Eeyore when reading the Fed Chair’s four-page speech. There was no room for error and his short speech ensured the message was crystal clear – there’s no ‘pivot’.
Locally, the Rand had broadly eased off well into Friday alongside the Sterling, the Yen and New Zealand Dollar. As the speech started, the USD rebound interrupted a corrective decline that had pulled USD/ZAR away from August highs when the Rand had appreciated following the release of stronger-than-expected local employment figures for the second quarter on Tuesday.
Tuesday’s data had shown the unemployment rate falling from 34.5% to 33.9% and was followed on Wednesday by other figures suggesting that external and domestic inflation pressures ticked higher in July, cementing in place hawkish market expectations of the South African Reserve Bank.
Lost in the noise is another reality, the US Fed is now scheduled to increase tapering of its balance sheet from $45billion to $95billion, a one-two combination on the tightening front. If the Fed throws in a couple of 75bps rate hikes over the next few months, it is hard to see there being no fallout in the developing countries’ debt markets. The pain to be felt by heavily indebted countries like South Africa, whose ratio of debt to gross domestic product stands at about 70% and rising cannot be understated.
What others say
Business Tech – Skills nightmare for businesses in South Africa
Currently, many of the firms’ existing senior managers have not been able to get work permits despite submitting all required documentation, said Mavusom adding that the problem seems to have arisen since the centralisation of all visa application processing by Home Affairs in Pretoria.
Bloomberg – South African jobless rate drops unexpectedly in second quarter
The jobless rate decreased to 33.9% in the three months through June from 34.5% in the previous quarter, Statistics South Africa said Tuesday in a report released in the capital, Pretoria. The median estimate in a Bloomberg survey of five economists was 35%. The rate is still the highest on a list of 82 countries and the eurozone monitored by Bloomberg.
Financial Times – A post-dollar world is coming
When a current account deficit runs persistently above 5 per cent of gross domestic product, it is a reliable signal of financial trouble to come. That is most true in developed countries, where these episodes are rare, and concentrated in crisis-prone nations such as Spain, Portugal and Ireland. The US current account deficit is now close to that 5 per cent threshold, which it has broken only once since 1960. That was during the dollar’s downswing after 2001.
Benzinga – Market volatility rises sharply after Powell’s speech
Powell said the Fed will remain aggressive in its monetary policy stance to fight inflation. “Price stability is the responsibility of the Federal Reserve and serves as the bedrock of our economy,” Powell said. “Without price stability, the economy does not work for anyone.” The Nasdaq recorded its worst single-day performance since June 16, amid a decline in high-growth tech shares.
What we think
Last week we stated, “Technically, topside momentum for the USD-ZAR is building towards the 17.10 mark, which lines up with a previous resistance line that stretches to the highs reached in mid-July”.
There are a lot of high-profile economic releases on tap for this week. However, that gnawing expectation for liquidity constraint will work against the market’s ability to establish a foothold in conviction. Eurozone CPI updates will determine whether EUR/USD can keep its head above parity. On the ‘recession fear’ side of things, we have emerging market (Turkey, India, Brazil) GDP readings and Chinese PMIs for August.
The local data calendar looks light, with only one notable headline catching our eye. Finance Minister Godongwana is set to present “measures to mitigate against fiscal leakages and their impact on service delivery.” The top shelf release though is the Friday US NFPs. The problem though is that it comes just before a three-day weekend in the US.
Our range for the week: R16.70/USD – R17.10/USD.
Have a great week ahead.