September 19, 2022
MyCURRENCY News | Week 38 2022
What we know
“Expectation is the root of all heartache.” So, the great poet William Shakespeare is supposed to have said — although there’s no evidence that he ever actually did. But it certainly played out in markets last week, which saw most risk assets fall in a broad-based selloff after the US CPI announcement.
Across the board selling sent the USDZAR to 17.50 after the data release – a hefty 50cent drawdown! US two-year yields rallied the most in more than a month, while the Euro’s brief rebound against the dollar wavered. The Rand was far from being the worst performer among the G20 currencies, although it has reached its lowest level against the U.S. Dollar since August 2020 as at time of writing.
In gaming, advancing to higher levels is considered progress. In life, the progression to stage 6 load-shedding is a severe step backwards. The phased approach by Eskom is an attempt to conserve power, which, according to the utility, is being threatened by unplanned breakdowns and sabotage – so they say. The implications for the real economy are obvious, but risks to SA’s fiscal metrics are as stark, with weaker growth prospects worsening SA’s debt profile and likely enlarging the sovereign risk premium.
That said, the focus for the second half of the week is likely to centre on the US as we count down to “F-Day” – where the US FOMC is set to announce its latest monetary policy decision. Swaps traders have baked another 75 basis points into their loaves of bread, with about a 50/50 shot that they go for a “jumbo” 100-basis-points. Judging from the latest CPI print, it’s clear more pain could be ahead as the US sees mid-term elections in November. Inflation will certainly be a major voting issue. The crucial point is that investors thought the worst of inflation was behind them, and now that no longer looks like a good bet.
What others say
Financial Times – The age of uncertainty for CEOs
Chief executives have always had crises to deal with. The last 15 years alone have seen the global credit crunch, the sovereign debt crisis in Europe, Brexit and US-China trade tensions. But the sheer number of factors today that could potentially derail companies and their leaders is unusual — from market volatility, supply-chain crises, surging inflation, the war in Ukraine, talent shortages, digital transformations to culture wars within companies.
Daily Maverick – Ramaphosa tells Biden he’ll help international peace efforts in Ukraine
US President Joe Biden suggests to Cyril Ramaphosa that South Africa use its ‘strong moral voice’ to help end Russia’s war on Ukraine. On climate change, Ramaphosa told the US President that South Africa was going to need an additional $38-billion over and above the $8.5-billion in financing already pledged by the US, European Union, UK, France and Germany.
Bloomberg – The global race to hike rates tilts economies toward recession
Late to see the worst inflation in four decades coming, and then slow to crack down on it, the Federal Reserve and its peers around the globe now make no secret about their determination to win the fight against soaring prices — even at the cost of seeing their economies expand more slowly or even shrink.
Moneyweb – Eskom to procure emergency additional energy on Monday
Following an urgent board meeting while Stage 5 load shedding was biting on Saturday 17 September, Eskom will on Monday start to urgently procure additional energy from existing independent power producers.
What we think
Last week we highlighted “Unless the Rand can keep on the front foot and break well below the R17/USD level, it feels like the current trajectory is for the USDZAR to consolidate around these levels before testing the R17.30/USD resistance again”.
The USDZAR goes into the September FOMC meeting on a two year high and the dollar seem to have found a natural bid, suggesting it may still be too soon to call the top of the USD appreciation phase. As with much of the world, the FOMC’s decision will be of interest to local markets. Our two cents worth is that they will not go 100bps and the overwhelming majority of economists appear to think the same.
With the Rand on its knees, the domestic setting is littered with disquieting news that we could be on stage 6 indefinitely. The timing of this latest bout of power cuts couldn’t have been worse. Anything short of another bold move by the SARB that will announce its decision after the Fed decides on Wed, will leave the ZAR vulnerable.
Our range for the week: R17.50/USD – R18.00/USD.
Have a great week ahead.