Tue. Feb 25th, 2020

Lights out for the Rand

The economy received a low blow with news of the implementation of Stage 6 load shedding.

lights out for the rand 1024x512 - Lights out for the Rand

This report is brought to you by Sable International

The news couldn’t have come at a worse time,
as investor sentiment is at an all-time low. The Rand is trading above R19
against the Pound and an impending downgrade of the economic outlook for South
Africa is knocking at the door.

State-owned enterprises (SOEs) Eskom, South
African Airways and Transnet continue to struggle. The only hope the economy
has is the upcoming holiday season that sees on average of over R200 billion
spent across the country. However, this is only a short-term moment of glee as
the Rand could most likely stay around or above R19 throughout the holiday
season. It is currently trading at R19.27 to the Pound, R14.65 to the Dollar
and R16.21 to the Euro.

Some upcoming news that could have a dramatic effect on the Rand is the new China-US trade tariffs which are being implemented from 15December. Continued efforts and negotiations coupled with the Federal Reserve holding off on interest rate cuts could be negative for the South African economy due to the negative correlation the ZAR has to the USD.

28a5be43 rand report graph 2019 12 10 - Lights out for the Rand

In international news, the UK will be
holding a general election on Thursday that will see either the Conservative or
the Labour Party take the win. This could bring better direction to the Brexit
debacle. A majority win for Boris Johnson would see the Pound rally to new
highs, whereas a hung parliament would see the Pound come under pressure.

With major economic data being released
this week, we could see a high level of implied volatility in the South African
market which, in turn, can break the bonds of the current trending market
between R18.80 and R19.30 to the Pound.

Market
event calendar

Tuesday 10 December

  • South African manufacturing
    production: This has been decreasing month-on-month since June and is
    forecasted at -1.9%
  • UK manufacturing production:
    Forecast at -1.4%

Wednesday 11 December

  • South African inflation rate:
    Forecast to decrease by 0.1% to 3.6%
  • US interest rate decision:
    Bullish outlook of 1.75%
  • US Fed monetary policy report

Thursday 13 December

  • South African gold production:
    Forecast at -7%
  • South African mining
    production: Forecast at +0.3%
  • South African PPI
  • UK parliament election

Friday 14 December

South African balance of trade: Forecast at
R2.8 billion

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