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On Friday credit rating agencies Moody’s Investor Services and
Fitch Group made their announcements on SA’s sovereign debt rating. Both firms
kept their ratings above sub-investment grade, but the biggest rating agency,
Standard & Poor’s (S&P), still has to release its decision.
Moody’s warned that political infighting, low growth and unemployment pose the greatest risks to the South African economy, while Fitch said continued political instability that adversely affects standards of governance, the economy, or public finances could lead to a downgrade.
South African markets remained stable after the announcements, indicating that an investment grade credit rating has been priced in. Speculators could see an opportunity to sell South African markets should S&P downgrade SA to sub-investment grade.
Both Moody’s and Fitch made mention of South Africa’s political instability and S&P is likely to make mention of it too, especially in light of the presidency’s announcement on Friday that President Jacob Zuma is challenging the remedial action in former Public Protector Thuli Madonsela’s State of Capture report.
Also on Friday, S&P downgraded Eskom’s credit rating to BB and maintained a negative outlook, saying the power producer’s “capital structure and free cash flow remain at unsustainable levels, even if its liquidity position and operating performance should show some improvement during the current fiscal year”.
Because the state-owned power producer is important to the country’s balance sheet, the early move signals to some investors that the ratings agency is preparing for a downgrade of the country’s sovereign debt.
In the event of a downgrade by S&P, speculators might look to sell the rand as well as South African stocks and bonds in order to make a quick buck.
Other important announcements due this week:
Monday
- SA Consumer Confidence
- Eurozone European Central Bank (ECB) president, Mario Draghi, speaks
Tuesday
- SA M3 Money supply, Private Sector Credit and Business Confidence
- US Prelim GDP, Federal Open Market Committee (FOMC) members speak and CB Consumer Confidence
Wednesday
- SA Balance of Trade
- Great Britain Bank Stress Tests
- OPEC Meetings
- Eurozone ECB president, Mario Draghi, speaks
- US ADP Non-Farm Employment Change and Oil Inventories
Thursday
- SA Total New Vehicle Sales and Barclays Manufacturing PMI
- China Manufacturing PMI
- Great Britain Manufacturing PMI
- US ISM Manufacturing PMI
Friday
- Great Britain Construction PMI
- US Non-Farm Payrolls and FOMC members speak
Giacomo Bonavera is head of foreign exchange trading at Capilis Asset Managers. Click here to visit the firm’s website
