November 07, 2022
MyCURRENCY News | Week 45 2022
What we know
Writing in his opinion piece on Bloomberg.com on 28 October 2022, John Authers writes “…there is no character in the entire canon of world literature and drama more useful for explaining markets than Wile E. Coyote. In the Roadrunner cartoons, he would run off the edge of a cliff, and continue running into mid-air. Only once he stopped, looked down, and realised that he was in mid-air, did he fall. He thus gave the market the invaluable concept of a Wile E. Coyote moment, when traders realise they’ve been running without support for a long time, and prices that should have long since been gradually coming down suddenly collapse.” Last week, saw the Dollar Index (DXY) respond to gravity in spectacular fashion.
This past week’s volatility was extraordinary for a number of different reasons and markets. On the final day of the trading week, the DXY registered a -1.9 percent tumble – the worst single-day loss since December 3rd, 2015, and before that March 18th, 2009. It’s hard to say that anything of similar magnitude was on the radar through the end of the past week. The non-farm payroll data was better than expected thereby supporting the fight against inflation, but the US Fed chair speech on Wednesday did remind us that the policy path was moving away from large, front-loaded hikes and towards a longer path to a higher terminal rate. It wasn’t a “pivot” as usually understood, but it certainly seemed to be the signal that had been expected of an imminent “step down” to smaller rate increases.
This may explain why the USDZAR struggled to punch through the 18.40 resistance level and eventually falling down to 17.96 by the close of the week. For the fourth time in a month, the USDZAR failed to break much higher, reinforcing 18.40 as a significant barrier to a much higher USDZAR. Although the ZAR always has the potential to hold a sting in the tail and exhibit volatility, these are signs that the bulk of the USDZAR surge is behind us and that investors worldwide are starting to rethink their long USD strategies from current levels.
What others say
Moneyweb – What to consider when reviewing your portfolio
When evaluating your portfolio, it is important to compare apples with apples. You should be comparing your portfolio holdings with alternatives that use the same benchmark, over the same period, in the same currency.
Bloomberg – South Africa needs to expand 5% consistently to cut unemployment
South Africa’s economy needs to expand consistently at 5% for years to create jobs and lower an unemployment rate that’s among the world’s highest, according to central bank Deputy Governor Rashad Cassim.
Daily Maverick – Regardless of which way the pendulum swings, the upcoming American midterm elections will be a real nail-biter
Regardless of the eventual outcome, it is going to be, as in the popular mythology about elections, a real nail-biter. It will be one in which election watchers, commentators, TV news presenters and the candidates themselves will be up late. Inevitable now, too, there will be bitter and increasingly farcical charges of electoral steals thrown around with wild abandon — generally with virtually no relationship to observable reality.
NY Times – Jerome Powell is popular. His war on inflation could change that.
The last time the central bank adjusted policy that quickly, in the 1980s, it inflicted economic pain that inspired intense backlash against the sitting chair, Paul A. Volcker. And while the rate increases were more extreme back then, the Fed’s moves were under far less public scrutiny than they are today, when global financial markets hang on every word coming from the central bank.
What we think
Last week we wrote “The current geopolitical environment too, does not inspire confidence and so the likelihood of the ZAR staging a retaliatory surge seems slim at present.”
The rest of the week’s calendar across the world is strictly second tier. But who are we kidding, we could have every major central bank in the world announcing this week and it would matter less. The only show in town is the US mid-term election, with the greatest show on earth reaching its season finale this Tuesday. Markets will turn themselves inside out and enter a state of analysis paralysis trying to forecast what asset class will do what under what scenario.
We will remind readers though; we do have US CPI and SA mining and manufacturing production data. Life does indeed, go on. In the meantime, sit back and watch the most highly anticipated television since the last episode of the Game of Thrones; oh, the irony.
Our range for the week: R17.60/USD – R18.00/USD.
Have a great week ahead.