Tue. Oct 22nd, 2019

Unpredictable Rand amidst election week

This week, South Africans will head to the polls to make their mark. 

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This Rand report is brought to you by Sable International

This past week saw the Rand weaken against major currencies, particularly against the Pound where it moved 3.2% as it drove itself up to R19.06 against the Pound, and a solid 2% against the USD, closing on R14.47 to the Dollar on Monday evening.

The elections may bring citizens together
from a social aspect, but from an investment point of view, there are two
schools of thought that could play out. Statistics drawn up by the research
group Intellidex points to the reigning party, the ANC, obtaining a majority
win with more than 58.3% of the vote. It is believed that if this happens, it
will cause a rally of volume that could boost the Rand. An outcome where the
ANC has a win of between 50-55% can initially be negative, but the long-term
prediction will be determined by how the new cabinet will be reshuffled.

When one looks at the statistics of all previous elections, the Rand tends to strengthen a month prior to elections and weaken in the post-election month, but these elections seem to not fit into the norm as the Rand weakened on average 5.35% against major currencies in the last 30 days.

75775ceb rand report graph 19 05 07 - Unpredictable Rand amidst election week

In international news, things are not
looking good for Theresa May. There’s been a call for clarity regarding her
resignation date, which is still to be determined.

In the US, Donald Trump caused chaos in the
financial markets by threatening to increase his 10% tariffs to 25% for Chinese
imports. This would have a detrimental effect on emerging markets in the long
term.

In recent months, the Rand has also been
burdened with high oil prices and a growing decline in major components within
the local infrastructure and pipelines. The cost of petrol is expected to peak
in the coming months, but a worst-case scenario of R20 per litre will only
happen if oil goes up to $90 a barrel.

Market event calendar

Tuesday 7 May 2019

  • Bank of England Deputy
    Governor for Financial Stability, Jon Cunliffe’s speech at 08:00
  • Financial and monetary policies to be discussed. Any major
    changes could cause volatility.

Wednesday 8 May 2019

  • South African General
    Elections

Thursday 9 May 2019

  • Manufacturing YoY and MoM statistics to be released – Forecast to decrease by 0.2% and 1.6% respectively
  • Consumer Price Index YoY to be released in China – A large negative outcome could spell danger for emerging markets,
    but an increase of 2.5% is expected.

Friday 10 May 2019

  • Gross Domestic Product Q1 – This is a measure of the total value of all goods and services produced by the UK. A rising trend will have a positive effect on the Pound.

-Andre Pheiffer

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