Weekly forex update 02/02/2018

02 February 2018

What we know

Another week has come and (almost) gone and apart from “sources” saying this and “sources” saying that, nothing has changed with regards to the South African political landscape.  Jessie Duarte’s weekend comments that Zuma is staying put, did spook the market somewhat and Monday saw the most significant ZAR weakness we’ve seen for quite some time as the ZAR touched 12.05 against the USD.  But thereafter the rhetoric shifted to the ANC Working Committee’s alleged demand that Zuma be recalled before SoNA, allowing the ZAR to rally.

The USD remained near its recent lows, with the market watching for Trump’s State of the Union address.  The speech touched on topics of immigration, trade, infrastructure, national security and tax reform; however, there was little to sway investors’ minds with regards to the short-term USD outlook.  Meanwhile, in the background, the GBP vs EUR tug-of-war continued to grind on with little to no new developments, albeit that Theresa May remains under pressure in what is proving to be a rather unenviable leadership position at present.

And, finally…………Corporate South Africa.  Having claimed at least one South African scalp with their expose of Steinhoff, Viceroy Research once again created doubt about the quality of South African corporate governance by accusing Capitec of being ““a loan shark with massively understated defaults masquerading as a community microfinance provider”.  While it’s too early to know the validity of such an accusation, it is likely that there is some fire causing this smoke.  At a time when the ANC leadership is surely feeling some relief watching the DA take a battering for its handling of the water crisis, so too are we seeing another possible situation where the private sector’s business practices will be facing harsh scrutiny, having for so long seen public corruption taking center-stage in this regard.

What others are saying

29 January 2018
Investec Morning Report

“We also expect the trade account to print a healthy surplus and the PMI data to show some signs of an upswing in the months ahead following the improvement in sentiment through Jan. There is still a constructive good news story unfolding for the ZAR that has not yet completed. Whilst this remains the case, selling the USD-ZAR up ticks remains the favoured strategy, although given the oversold USD-ZAR position reflected in the charts, USD selling pressure might only materialise closer to the 12.0000 handle or above.”

Radio 702 | Political Desk: Zuma is here to stay

“It was quite interesting hearing David Mabuza saying ANC president Cyril Ramaphosa is safe with him and again confirming that in terms of power, power lies with the ANC, but on the other hand you have got Jesse Duarte saying that the president is here to stay.”— Mahlatse Gallens, Political editor at News24

Read Duarte’s comments saying ‘Zuma is here to stay.

30 January 2018
RMB | Global Markets Daily Report: Profit-taking after running too hot

“The global moves mainly reflect that markets have been running too hot and that many are happy to lock in the profits. We see evidence of this in the SA bond market where foreigners have been lightening up exposure since early last week…”

“… More fundamentally, the losses yesterday could also reflect growing concerns that the global economy could be running too hot. Certainly, the mood has been shifting to thinking that central banks are going to have to tighten more aggressively than thought.”

“… While yesterday’s global market sell-off was very aggressive, we think it is too early to suggest the bull market is turning”

Daily maverick | Explainer: Why Capitec Bank is in the hot seat

31 January 2018

Sowetan Live | Sunday World Zuma given until end of week to go – Article

“We have written to that effect to the National Assembly Speaker Baleka Mbete. She has acknowledged our letter,” said EFF spokesman Mbuyiseni Ndlozi.

“Everything should be done as humanely as possible. We don’t want a forced resignation. We support the decision that the top six officials should handle the transition.” Said Zikalala

Fox News | Politics South Africa’s president under growing pressure to leave

“A flashpoint for frustration could come on Feb. 8 when Zuma is scheduled to deliver the state of the nation address in parliament. If he speaks, there likely would be protests both inside and outside the chamber… On Wednesday, Mmusi Maimane, the main opposition leader, asked the parliament speaker to postpone the speech until the ruling party resolves its internal conflict and South Africa has a new president.”

“Zuma has appointed a commission of inquiry to look into corruption allegations. He could be looking to secure benefits after the presidency including protection from prosecution, according to analysts.”

Read more here

01 February 2018
Bloomberg | Quint South Africa’s Rand Last Looked This Good a Decade Ago: Chart

“South Africa’s currency has had its best three-month run in almost 10 years as it rides a wave of optimism following Deputy President Cyril Ramaphosa’s election as the leader of the ruling African National Congress. The 19 percent gain in the period ended Jan. 31 is more than double that of the next-best emerging-market currency, Poland’s zloty.”

BBC News | Politics Brexit: Theresa May to fight EU transition residency plan Article

Speaking during her trade trip to China, Mrs May insisted such an “implementation period” would last about two years.

“We are not talking about something that is going to go on and on… we’re leaving the European Union. There is an adjustment period for businesses – and indeed government – for changes that need to be made,” she said.

What we think

Almost 30 years ago, the greatest band known to man, R.E.M., release a song called Pop Song 89.  The chorus (if you could call it that) went:

Should we talk about the weather? (hi, hi, hi)
Should we talk about the government? (hi, hi, hi, hi)

And really, especially if you’re from Cape Town, it feels as though that’s all we’re doing at the moment.  While both the drought and local politics have been ongoing saga’s for some time (despite the DA seemingly want to really downplay the former in favour of the latter), it does feel as though things are reaching a head in both respects.

SoNA is now just a week away and things are getting tight if the country (and the ZAR) want to see Cyril rather than Jacob on the podium.  It’s quite surreal to have market participants so want to know what the outcome will be, while at the same time, really not have any concrete facts upon which to base predictions.

Without any clarity a ZAR.USD range of 11.00 – 14.00 is possible in the coming months, so important are the implications of the outcome.  In the meantime, in the light of what we do actually know, rather than noise and speculation, we continue to urge clients to remain cautious and to externalize funds, should current levels be palatable given their particular circumstances.

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Have a great weekend!