“Sell in May and go away” echoed through the marketplace last week as the Volatility Index dubbed the “fear gauge” went from 12.50 to 16.85. Technical indicators seem to indicate that further increases in fear are likely, but the gauge remains below its long-term average of 18.65, muting an Armageddon-style sell-off.
Major indices were down for the week and the JSE followed as concerns over global growth, the failure of extraordinary central bank stimulus and banking profitability in an era of negative interest rates and tepid recovery in oil prices diffused across major financial centres.
Money-market investors abandoned betting on another interest rate hike this year, even as bullish Fed officials supported the case for a hike as soon as June. This helped support the dollar index from 16-month lows touched on Tuesday.
St. Louis Federal Reserve president James Bullard said on Thursday, “We’ve got our options open… I would expect market probabilities will change if the data changes.”
San Francisco Fed president John Williams brought up the pending Brexit referendum, saying it would be necessary to take into account the effect of a British exit from the EU.
The rand experienced an extremely volatile week as it weakened over 7% R14.11/$ to R15.14/$. Rand bulls certainly didn’t come in to strengthen the currency from lacklustre fluctuations around the R15/$ mark, indicating there was no rush to buy back the local currency. Net foreign cash flows went from positive to negative on Tuesday.
Emerging markets in general have been sold off as investors took profit after a steady rally and safe-haven US 10-year Treasury price spiked in an indication of risk sentiments shifting.
Gold peaked over the $1 300 level last week before retracing to $1268.58 on an exhausted bull run. There is so much speculative activity affecting the gold price after bullion changed hands at a 22% premium compared to beginning January. The value of the dollar has one hand on the steering wheel as it drives the price of the dollar-denominated gold price.
Important announcements due this week:
Monday
- SA Foreign Exchange Reserves
Tuesday
- SA Unemployment
- EU Industrial Production
Wednesday
- Great Britain Manufacturing Production
- US Crude Oil Inventories and Federal Budget Balance
Thursday
- SA Gold Production, Mining Production, Manufacturing Production
- Great Britain Bank of England (BOE) Inflation Report, Monetary Policy Summary, Official Bank Rate, Asset Purchase Facility and BOE governor Mark Carney Speech
- US Unemployment Claims
Friday
- US Retail Sales, PPI and Prelim UoM Consumer Sentiment
- China Industrial Production
Giacomo Bonavera is head of foreign exchange trading at Capilis Asset Managers. Click here to visit the firm’s website.