September 05, 2022

Currency News

MyCURRENCY News | Week 36 2022

MyCURRENCY News | Week 36 2022

What we know

The “R” word is being used more and more as recessionary winds start blowing more loudly through economic data and the price action in financial charts is telling. Local macroeconomic data released on Tuesday suggested that SA’s economy is slowing. The one data point that gave cause for concern was the government budget data for July. A R129m deficit was generated in the month, which was marginally narrower than the R136bn deficit generated the year prior. 

The Rand has not been spared, succumbing to the USD’s advances dropping back to 17.20 USDZAR at writing. No longer can the ZAR count on its relatively attractive interest rate and a conservative central bank alone. You can literally choose from an extensive drop-down menu of recessionary drivers: Sticky inflation and rising interest rates, recurring Covid-19 lockdowns in China, and the list goes on. It is clear that sentiment is turning though and given the appalling track record of forecasting these past couple of months, the more central banks say, “soft landing,” the more nervous markets become, and rightly so.

As a result, volatility is an inevitable consequence as the street tries to price in the next direction of travel. Currency markets are saying the US Fed won’t blink on rates. Gold doesn’t seem to care. Oil is cracking like a refining spread, but has yet to reach the longer-term support lines, although we’re not far away. It would be ironic if falling energy prices from a recession torpedoed the funding for Vladimir Putin’s war machine.

Nowhere has it been more frantic than the crypto space which endured some emotional volatility post the Jackson Hole symposium. The more the merde hits the fan in the macro space, the more the crypto inflation hedge narrative falls apart. I can’t help but think of George Orwell’s Animal Farm… “All animals are created equal, but some are more equal than others.”

What others say

Business TechSouth Africa is driving at 60 – while the rest of the world is going 100

Current forecasts for real GDP growth for South Africa stand at 2% this year, with expectations that growth will converge around 1.5% per annum over the long term. This is the country’s potential economic growth rate, given current fundamentals and structural constraints, PwC said. In turn, the group expects the global economy to grow at a healthier long-term rate of 2.6% per annum.

Venture BurnShould investors target Africa in tough economic times?

Take age, for example. The median age across Africa is 19.7 years old, with 40% of the population aged 15 and under. Those young people are also increasingly well-educated and connected (thanks to the increasing ubiquity of smartphones and affordable internet connectivity). That not only makes them more sophisticated consumers, hungry for the same experiences as people in the rest of the world have, it also means that they’ll be better capable of staffing the businesses that will drive the continent’s growth.

Visual CapitalistRanked: The most and least liveable cities in 2022

According to the report, a number of cities in New Zealand and Australia temporarily dropped in the ranking due to COVID-19 restrictions.

It’s also worth noting that some Eastern European cities moved down in the rankings because of their close proximity to the war in Ukraine. Finally, Kyiv was not included in this year’s report because of the conflict.

BloombergOECD urges South Africa to raise taxes, sell state firms

South Africa’s top 10% of earners contribute almost half of all revenue, and the richest 10% of its residents hold 85.6% of net wealth, according to the OECD, which sees scope for the tax system to contribute more to reducing inequality. 

What we think

Last week we highlighted “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”.

The question is whether near-term economic data out of the US will be strong enough to trigger another bullish dollar reaction – our suspicion here is that the market may not really need huge surprises to fully price in a 75bp hike in September and thus continue with the long-USD trade currently in play.  For now, Friday’s respectable jobs report is likely, at the very least, to continue to provide support to current USD levels.  A break above 110.00 on the USD index (DXY) may unlock further upside for the USDZAR.

SA’s calendar sees Consumer Confidence and Q2 GDP figures on Tuesday. Both have downside risks and may add to the recessionary noise. With a dearth of tier-1 data in the US, interest rate expectations are likely to continue to drive volatility, although it wouldn’t surprise us after last week’s bonfire at the Jackson Hole symposium. Either way, we can expect plenty of intraday noise, but ultimately directionless volatility this week in our view. 

Our range for the week: R16.98/USD – R17.36/USD.

Have a great week ahead.