Tue. Jul 23rd, 2019

Political and data risks govern the market

cyril ramaphosa cabinet picks businessLast week started off with the Rand on a solid strengthening streak with the GBP/ZAR moving from the low 19s to the mid-18s.

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This Rand report is brought to you by Sable International

This was mostly due to uncertainty within UK politics coupled with declining production data in the country, and less to do with any fundamentals in South Africa.

Moody’s has warned
that the possibility of South Africa slipping into recession is high and it
expects the South African Reserve Bank to cut interest rates soon to stimulate
the economy. This could lead to downward pressure on the Rand in the
medium-term.

This past Wednesday, the Rand weakened drastically as allegations of wrongdoing surfaced against president Ramaphosa regarding BOSASA donations to assist in his presidential campaign.

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In the UK, the battle
to take over the leadership is stepping up, with various candidates throwing
their hats into the ring. This will be a major risk factor in the foreign
exchange markets and should be monitored closely.

Last week, Boris
Johnson came out on top after the first round of votes in the Tory leadership
race. The Pound has been on the back foot since then with most candidates
pushing for a no-deal Brexit.

This week began with
the Sterling losing even more ground as the second round of votes are up today.
The outcome of this will definitely have an impact on the Pound Sterling and should
be watched closely.

On the data front this
week, the South African inflation data will be released on Wednesday, which
will be a big factor in the local market. Inflation is expected to increase
marginally, which is not good for the Rand.

On the international
front, the Bank of England and European Central Bank heads will make their
speeches today. On Wednesday, the UK inflation data will be released, which is
expected to drop slightly. In the US, the Fed will be announcing the interest
rate decision, which will be a major risk factor in the market.

On Thursday, the
Japanese and British interest rate decisions will be announced. Both are
expected to remain unchanged.

Overall, this week has
many data and political risk factors at play. Volatility is the one thing we
can be sure of and the market should be watched closely.

Market event calendar

Tuesday 18 June

  • EU inflation data: Expected to remain stable, any divergence
    would result in volatility.

Wednesday 19 June

  • UK inflation data: Expected to drop marginally, this should
    be GBP negative.
  • SA inflation data: Expected to increase marginally, this
    should be ZAR negative.
  • US interest rate decision: Expected to remain stable, any
    divergence would result in volatility.

Thursday 20 June

  • UK interest rate decision: Expected to remain stable.

Friday 21 June

  • EU manufacturing data: No major change expected.

Sebastian Steyn

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