Sat. Dec 14th, 2019

SAA and US-China trade talks impact the Rand’s movements

As the week progressed, the Rand saw some unusual strength.

saa and us china trade talks impact the rands movements 1024x683 - SAA and US-China trade talks impact the Rand’s movements

This Rand report is brought to you by Sable International

Even though nothing too concerning occurred, the local news has been dominated by doom and gloom surrounding South Africa’s State-owned Enterprises (SOEs).

As the week
came to an end, SAA employees went on strike causing many SAA flights to be
grounded and cancelled. During this time, the Rand strengthened, contrary to
what one would expect to happen considering investor sentiment. One possible
reason for the resilience of the ZAR could stem from global factors, mainly the
US-China trade war. According to the main US negotiator, they are “in the final
stages” of solidifying a “phase one” trade deal. This has led to a risk-on
mentality by many investors, resulting in the main US stock indices reaching
all-time highs and money flowing into more risky asset classes such as the
emerging markets. Although we have heard this kind of news on the trade talks
before, it does seem like this could be the real deal and investors are
committing to a positive risk sentiment approach at present.

In the UK, Brexit is still ongoing, with the elections fast approaching. This will undoubtedly result in some volatility in the market over the next month. Over the past week the UK GDP dipped below expectations, which added to the perceived ZAR strength. The GDP data release was followed by disappointing inflation and production data, further dampening sentiment in the UK economy as Brexit keeps dragging on. On the flip side, both the US and EU have reported improved production and growth data, further emphasising the disappointing UK performance.

709406d3 2019 11 19 the rand report - SAA and US-China trade talks impact the Rand’s movements

As the new
week began, the Rand weakened by about a percent against most major currencies
as investor sentiment turned against the economy and the troubles with the SOEs
continued. On the data front, we have local inflation data on Wednesday and the
South African interest rate decision on Thursday. Inflation is expected to increase
slightly, while the interest rate is expected to be kept stable. 

Globally,
the US-China trade war will be one of the major catalysts in foreign exchange
flows and should be monitored closely over the coming weeks. Data wise, there
isn’t much on the global horizon, so overall it is advised that traders do not
overcommit to any directional trade and maintain a risk neutral approach in the
market. Once we see some concrete developments in this trade war debacle one
can make an informed decision as to where the market is going.

Market event calendar

Wednesday
20 November

  • South African inflation data
  • Chinese inflation data

Thursday
21 November

  • South African interest rate decision
  • ECB monetary policy meeting

Friday
22 November

  • EU manufacturing and services PMI

-Sebastian Steyn

Leave a Reply

Your email address will not be published. Required fields are marked *