December 12, 2022

Currency News

MyCURRENCY News | Week 50 2022

MyCURRENCY News | Week 50 2022

What we know

Financial markets have a hurry up and wait look about them at the moment. There are a lot of balls in the air right now and we are waiting patiently for at least one of them to come down. Domestically the market is gearing up for ANC elections that take place over the weekend. The situation at Eskom appears to be worsening, with the SOE setting a new grim record of loadshedding. Then, of course, there is this week’s main event, the Fed’s final policy meeting for the year. 

V for Volatility continues to be the biggest winner this December as financial markets continue to scamper between the baseline and the net in a never-ending game of headline chasing tennis. Last week saw several interesting developments on the macroeconomic data front, with a mixed outlook forming. Current account data offered some relief to the ZAR as the deficit shrank both in nominal terms and as a percentage of GDP. On Friday, the US dollar rose, after a higher-than-expected US PPI print renewed concerns that inflationary pressures in the States remain robust. The PPI numbers set the stage for tomorrow’s highly anticipated US CPI print, which holds plenty of market-moving potential as investors try and determine how long the Fed will keep interest rates at restrictive levels. Many of the big global trends driving prices higher have turned, but it seems consumers and businesses across the world have begun to grow accustomed to rising prices. 

Looking at this week, there is a definite feeling that markets will be entering a holding pattern ahead of the US FOMC rate announcement. The sense of calm belies an underlying exhilaration in the market about the Fed’s forward guidance, although in all honesty, the news that John Wick: Chapter 4 will be screening in the first quarter of 2023, raised my temperature more. Should the projections and Powell’s signalling point to rising concern, the market will take that as a dovish outcome and rotate out of the US dollar. Locally, all eyes will be on the ANC elective conference kicking off on Friday. The outcome of the ANC’s elective conference will directly affect economic policy for the next seven years and is, therefore, an important development. That is to say, headlines and rumours will drive short-term volatility as traders try to match price action to the narrative rather than vice versa.

What others say

Daily MaverickDark, dumb and dangerous: Inside South Africa’s perfect (electrical) storm

The big picture isn’t pretty, but it can be explained without providing a justification. To make sense of what is going on, we need to be aware of the long-running historical drivers and the immediate current dynamics that reflect a deepening of the crisis at a time when politicians are focused on political survival and not the big, bold courageous decisions that are needed to get us out of the crisis.

BloombergRising political star has a plan to fix South Africa’s struggling economy

Mashatile made no secret of his political ambitions in a Nov. 29 interview at Bloomberg’s Johannesburg offices the day before the panel released its report. He began his response to one question by saying: “If I become ANC president…,” before laughing and correcting himself.

Financial TimesNext year’s unpleasant choices confronting the Fed

The world’s most powerful central bank is now confronted with two unpleasant choices next year: crush growth and jobs to get to its 2 per cent target or publicly validate a higher inflation target and risk a new round of destabilised inflationary expectations.

BloombergUS-Africa set to iron out Duty-Free Trade pact future at summit

“The US’s resolve to claw back lost influence in Africa will be put to the test this week when dozens of the continent’s leaders and officials gather for three days of talks with their American counterparts in Washington.”

What we think

Last week we stated that “We look forward to seeing how constrained the Eskom network is and how this week’s loadshedding pans out – though it does not look positive”.

Stage 6 load shedding announcement was the last thing this economy needed. Consumer confidence is its second-lowest level in more than three decades and business confidence was fading before the onset of Stage 6. This will simply erode confidence further and one of the many things that can be gleaned from the rand’s performance is that it is often a measure of confidence. 

Still, the balance of risks over the medium term remains tilted in favour of the rand, especially given how overvalued the US dollar is. Technically, the psychological USD/ZAR17.00 level is the first major target for the rand bulls should the momentum shift as the week progresses.

With so much up in the air, momentum has waned for the risk-on trade for now. Things should be more transparent by the week’s end; in the meantime, some patience and last-minute Christmas shopping are the best courses.

Our range for the week: R17.00/USD – R17.50/USD.

Have a great week ahead.