December 15, 2017

Currency News

Weekly forex update 15/12/17

Weekly forex update 15/12/17

What we know

The ZAR held a steady range for the week trading between 13.45-13.75, enjoying a slight positive bias in the wake of two significant court findings against Jacob Zuma. Markets remain fixated the ANC conference this weekend which will undoubtedly set the ZAR on a new trajectory, sentiment is by and large pricing in a Ramaphosa victory.

On the macro front we saw some encouraging numbers; November CPI was recorded at 4.6% y/y and manufacturing production for October increased 2.2%, ahead of expectations. Retail sales however, only managed to increase 3.2% well below expectations of 5.3%.

Looking abroad – The Fed raised rates by 0.25% on Wednesday in-line with expectations, to a target range of 1.25 – 1.5 percent and maintained its September forecasts of three additional rate increases in 2018 and 2019, despite persistently weak inflation readings. Core consumer inflation measured lower than expected at 1.7% in the 12 months to November, weighed against unemployment, which has dropped to a 16-year low at 4.1%. If inflation fails to tick up past 2% the Fed might consider holding off on additional rate increases until prices respond.

What others are saying

11 Dec 2017
Bloomberg: Investors Told to Brace for Steepest Rate Hikes Since 2006

“2018 is the year when we have true tightening,…We will continue on the current path where financial markets can deal quite well with monetary policy but perhaps later in the year, or in 2019, monetary policy will become one of the complicating factors.” Ebrahim Rahbari, director of global economics at Citigroup in New York

RMB Global Markets Daily: Will he, won’t she?

“We suspect, however, that the rand’s gains are going to abate and the market will be cautious going into the weekend given the decisive vote is due on Sunday. But this does not imply stability — in fact, the opposite as nerves get drawn tight and global markets react to the key international data and events.”

Investec Morning Report 

“…as the noose around the Zuma linked patronage lines starts to tighten, it would not be surprising to see politicians gradually shifting their alliance towards Ramaphosa”

12 Dec 2017
RMB Global Markets Daily: Surprising stability but volatility looms

“The key takeaway from yesterday’s rand trade was the stability — a bare 12 cents range, which is half the average seen in the past two weeks, with very little intraday swings. Seemingly, the low global volatility environment has compounded with caution ahead of the weekend to bring a sharp change to the market.”


13 Dec 2017

Times Live

Gauteng Premier, David Makhura said about the ANC, “If it doesn’t give South Africa the leadership that will win public confidence, not only is the ANC going to lose 2019 elections, but the country will be in a much longer protracted economic disaster, with deep pain for ordinary people,…We have got to get a team of leaders who understand that South Africans are fed up with corruption and also fed up with an economy that is not performing.”

Read more here

Reuters: Fed lifts rates but 2018 policy outlook unchanged

“The Fed statement said that while inflation is subdued, they remain confident that in the next 12 months that it will hit the 2 percent target. The TIPS market is saying the exact opposite.”

Morning Star News: Market Watch

Federal Reserve Chairwoman Janet Yellen, asked about record levels for stocks, acknowledged that price-to-earnings ratios are at the high end of historical levels. But with low interest rates, solid economic growth, low inflation and balanced global economic risks, that doesn’t mean they’re overvalued. “Economists are not great at knowing what appropriate valuations are. We don’t have a terrific record. And the fact that those valuations are high doesn’t mean that they are necessarily overvalued,” she said at the press conference

Commenting on Trump’s prediction that tax reform will deliver 4% growth, Federal Chair Janet Yellen said: “The Federal Reserve would welcome changes in the economy that would allow for 4% sustainable growth, … It is challenging, however, to achieve growth of those levels, she said. The Fed has not independently scored the tax bill… The Fed is relying on estimates of the Joint Tax Committee and other analysts for the assumptions individual members use in their economic projections, which don’t show anything like 4% growth coming from the tax cut.”

Read more here


“Once tax cuts kick in, we should see GDP growth north of 3 percent easily…On one hand we hear all this chatter that inflation is low and is not picking up. On the other hand, when we look at real assets and financial assets, they’re going through the roof.” Massud Ghaussy, senior director of advisory services at Nasdaq Advisory Solutions.  Read more here


“The fact that they stuck with the three rate-hike forecast sends a signal that at this point they’re not ready to adopt a potentially more aggressive stance that a number of people have been talking about for next year,… The Fed could very well be two (rate hikes) vs. three going into next year.” Craig Bishop, lead strategist for U.S. fixed income at RBC Capital Markets.  Read more here


14 Dec 2017

Daily Maverick – ANC Death Knell? The five stages of a party in its death throes

Mzukisi Qobo, an Associate Professor at the NRF Chair on Foreign Policy and African Diplomacy, University of Johannesburg: “This is the stage where the party’s ship is sinking, with all possibilities for salvation disappearing rapidly. Losing a major province or failing to muster majority votes to govern nationally would be the visible culmination of stage five of decline. Once the party loses its grip on power, it may struggle to claw back and would head permanently to the sunset.” Read more here


What we think

South Africa’s judiciary is proving to be a formidable last line of defence against JZ and his evil army. The nation (and the ZAR) anxiously awaits the results of the ANC conference this weekend, moreover the ZAR’s resilience appears to be anticipating a Ramaphosa win breaking through the 13.50 support level we saw last week. Whilst the outcome is impossible to call, the wave of legal judgments against Zuma’s axis is fuelling optimistic sentiment. We do urge caution on blindly celebrating a Ramaphosa victory as Zuma could still manufacture a political stalemate that will prolong our economic malaise until the 2019 general election…. A compromised slate with 2 deputy presidents (the losing presidential candidate being the second DP) will infect Ramaphosa’s new executive with Zuma loyalists, thereby paralysing attempts to reform the ANC.

For now we wait….

Have a great weekend!