Weekly forex update 08/12/17

What we know

And we thought the holidays were meant to start in December!  This week felt more akin to last minute Christmas shopping:  just cram as much news and controversy in as possible, before the holidays start.

While public attention has been squarely focused on SA’s ruinous public affairs, Multichoice’s (Naspers) dubious payments to Gupta linked entities and Steinhoff’s corporate catastrophe, has highlighted yet again that endemic fraud and corruption extends far beyond the realms of Government, the ANC and Gupta linked corporates.  SA’s corporate acumen has long been respected the world over.  In fact, over the last 7 years SA ranked #1 in the world for auditing standards according to the World Economic Forum (WEF).  The prestigious ranking fell dramatically to 30th this year!  From an international investor’s perspective, SA is demonstrating it’s no better to Brazil or Russia – the kleptocratic kings of Emerging Markets.

Elsewhere, Theresa May came under intense scrutiny regarding the ongoing Brexit debacle, Donald Trump raised tensions in the Middle East by reaffirming Jerusalem’s status as Israel’s capital and something called BitCoin continued to divide the world into two camps:  the believers and those who think it’s all going to end in tears.

The ZAR has continued to defy our expectations to trade below R13.50 late Wednesday night.  However, yesterday did see the first pull-back in some time, as we lost 2% against the USD from the best levels. A combination of a firmer USD, the Steinhoff saga and uncertainty around Zuma’s nuclear energy plans seemed to start weighing.

What others are saying

4 Dec 2017
Investec Morning report

“Currently, it is too soon to tell (the outcome of the conference) and in truth, this may well remain the case for the next two weeks whilst we await to see how the legal disputes are resolved and how the remaining two branches vote.  If pushed for a short-term position, we may opt to tilt in favour of a small long USD position, but that should not be confused with the expectation that the ZAR could strengthen significantly on a more favourable outcome in December.”

07 Dec 2017
RMB Global Market Research

“…we think it is useful to remember that the US dollar traded at 1.075 last time this year and is up 10.3% y/y against the euro. Similarly, we do not think the rand is particularly strong against the dollar, trading 0.5% y/y weaker than a year ago.”

Investec Morning Report

“Whilst we remain cautiously optimistic for further ZAR strength in the weeks ahead, for now it would appear as though some consolidation may be on the cards, especially ahead of tomorrow’s US non-farm payrolls data.”

Eyewitness News – Reporter Gia Nicolaides:

The Public Servants Association (PSA) has called for the safeguarding of pension investments following allegations of accounting irregularities at Steinhoff:

“This is the tip of an iceberg. More than R12 billion is gone and tomorrow it’s another R12 billion. We’ve called an urgent meeting with both the PIC and GEPF to also check the extent of this disaster.” Tahir Maepa, Deputy General Manager: Members’ Affairs. read here

08 Dec 2017

The Guardian
[Speech] Brexit Deal: Tusk says transition period next hurdle after Theresa May says ‘no hard border’ in Ireland

“…we are ready to start preparing a close EU-UK partnership in trade, but also in the fight against terrorism and international crime as well as security, defence and foreign policy. For this to happen, the European Council will have to adopt additional guidelines next year.”

 

Other Tidbits

News 24

“NO TO NUCLEAR!  The Central Methodist Mission church in Cape Town’s Green Market Square shows its opposition to the government’s nuclear plans.”  Picture supplied here.

Eyewitness News

“The day Madiba died still leaves a residue of heaviness. 5 December 2013”

[Opinion] Article titled South Africa’s Long Walk Must Continue– by Judith February, a senior research associate at the Institute for Security Studies:

 

What we think

A couple weeks ago, with the ZAR.USD at 13.80, we suggested that a range of 13.50 – 15.00 for the rest of the year was possible.  Although this was a large range, we felt that all the uncertainty ahead meant that significant volatility could lie ahead.  Interestingly, the past two weeks have seen very little volatility with a fairly tight range of 13.45 – 13.80.  On a number of occasions the ZAR has weakened to test the 13.80 level and each time it has rallied 10c fairly swiftly.

Given the weakness from yesterday, we feel that today’s Non-Farm Payroll will be a key factor:  a weak number should see a move back towards the lower end of the recent range, while a positive surprise and its associated USD strength, could be a trigger for a push through 13.80 and a test of the 14.00 level.

Either way, the market is bracing to finally find out the result of next week’s big reveal.

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Have a great weekend!