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ANALYSIS | Rand takes global & local volatility in its stride

Feb 12 2018 22:19
James Paynter

In a whirlwind week, the rand was really caught in the middle of a global thunderstorm. However, a volatile few days only created a range of around 20c - surprisingly low.

What is most important from this week, is that we are NOWHERE near coming out of the woods - after the delayed State of the Nation Address, and a seemingly bungled ousting of President Jacob Zuma (perhaps Zuma has another card up his sleeve against Deputy President Cyril Ramaphosa?), we still have no clarity - no clear plan as where we are going in the month of February.

It is definitely going to be an important few weeks, and it is going to take some time to unravel it all, as well, but let's just start with this last week.

As always, the week began with our forecast late on Friday - as we called out what the expected trend was - a bottoming out before moving into the R12.19-23 zone to test resistance.

What a week! To select just a few of the key moments:

  • Zuma expected to stand down - however, he refused to voluntarily do so in a meeting with ANC top leadership... a sticky situation;
  • ANC meeting planned - and then cancelled after a Zuma-Ramaphosa 'constructive discussion'... many thought it was gameover for Zuma, but he lived to fight another day;
  • SONA delayed - just a few days before one of the biggest events of the year, the State of the Nation Address was postponed, indefinitely;
  • US stocks crash - it was a volatile few days in the United States as stocks nosedived, experiencing the biggest one week drop in years; and
  • Bitcoin breaches $6 000 - cryptocurrencies also experienced a meltdown reminiscent of the 'Dot-Com Bubble' of 2001, the heavily overbought cryptocurrency plummeted.

This was always going to be a massive week in South African politics - there has been an effective standoff for some time now between Zuma and newly-elected ANC president, Ramaphosa.

And this week, it was going to come to a head - it just had to!

With SONA pencilled in for Thursday, 8 February, how could it be that Zuma gives the speech, when he is clearly not in with the ANC Top 6 any longer?

As expected, it all blew up on Monday.

Reports were that Zuma had refused to step down in a meeting with officials on Sunday night, and on Monday it was announced that a 'emergency ANC Meeting' would be held on Wednesday by the Top 6 (the day before SONA)

Zuma's exit now looked a formality...

(While all this was going on, the US stock market was in free fall - the most volatile period in United States stock history - it proceeded to lose 8% in total by the end of Monday!)

And then, the next step was taken: SONA 2018 was postponed on Tuesday.

Now SURELY this meant that #Zexit was just a step away? Well, that would be a wise assumption.

However, it all changed again on Tuesday evening. After a 'constructive discussion' between Zuma and  Ramaphosa, the ANC Meeting on Wednesday was called off.

What had happened in this meeting to change the way the tide was going? I doubt we will ever know - but it appeared Ramaphosa was close to checkmate.

Good news was that, although SONA date was undecided, the Budget speech will still take place on February 21.

So, where was the rand in amid all of this?

It actually held fairly stable, despite what one would expect. It had moved in line with our forecast, to just under the target area.

It had been surprisingly stable, and even Sable International noted this on Wednesday morning: "It seems that the rand is also reacting less violently to every bit of political news that breaks. Yesterday the SACP released an outlandish statement claiming that Cyril Ramaphosa was to be fired in favour of Nkosazana Dlamini-Zuma. The rand barely moved when the story broke and this morning it was trading firmer against the greenback."

Again, this shows that you cannot simply try and interpret the positives and negatives in the news, and expect the market to react accordingly. As we saw again this week, it does not happen that way. See below:


So when SONA was postponed, the rand strengthened.

And when the ANC NEC meeting was cancelled due to a constructive discussion, the rand weakened.

Those events don't tie up with the market movement - and there never will be such a correlation, despite economists trying their hardest to force their unproven theory on the market.

Take the US stocks: what could possibly be the reasoning for the sudden crash? Nothing in the economics or politics is really any different to a week ago, or a month ago, yet look at this chart:

And, Bitcoin was just the same:

So what caused these crashes, then?

Simply this: Both markets had reached an extreme in sentiment of multiple degrees. As such was the degree positivity, that there was no-one left to turn positive, and take action (buy) accordingly.

It is like the last ripple on the last wave of a high tide that reaches the highest point on the sand. From that point, the tide has turned. And it won't return to that point until the lowest point in the tide cycle has been reached.

And that is what we have seen with these two markets.

On a different cycle, what hit Capitec last week should have destroyed their stocks. However, people have not taken it in the same light as Steinhoff for example (OK, Steinhoff was different, but still a 'bombshell' report) and we have seen Capitec stocks recover well.

Anyway, our next forecast was due, and this was released on Wednesday, giving the picture for the days ahead. With the rand at R12/$, we were expecting an upward trend toward the R12.19-12.23 area to confirm a move higher.


On Thursday & Friday, the crashing stocks just continued - the Dow Jones Index had dropped over 3 000 points in a few days - scary stuff!

As for the rand, it also lost ground, as it moved up to touch over R12.19 as per our prediction from Wednesday.

On Friday, it levelled out to around R12.10/$, as the news broke that Ramaphosa was meeting with the Top 6 on Saturday.

It was going to be another exciting and interesting weekend and week ahead!

The week ahead (12 - 16 February 2018)

This week has started with the rand on the front foot (pushing back below R12/$), despite the #Zexit saga still being nowhere near over.

Clearly Zuma is not going softly, as ANC's national executive committee are holding an urgent meeting to try and map the way forward.

And while all eyes will be looking to these events for direction for the rRand, once again, we will simply be relying on what the chart patterns themselves tell us.

And I suggest you do the same. Until next week.

* James Paynter is a financial market analyst and  founder of Dynamic Outcomes.

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cyril ramaphosa  |  markets  |  currencies  |  opinion  |  rand  |  zuma exit
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