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14 August 2017: Its just politics
Last week was all about the no confidence vote against the President of South Africa, and as we all know the motion failed. Without flogging a dead horse, some interesting facts emerged surrounding the vote, with the vote being a lot closer than initially thought chief among them. The after effects of the latest chapter in our political arena needs to be closely monitored as there can be some ripple effects going forward to the ANC conference and affecting markets and South Africa as a whole.
Focusing on the Rand pre- and post- vote the expected weakening happened as soon as a result was announced with the Rand trading in the mid R13.10’s before the outcome of the vote. The public holiday last week did little to improve the fortunes of the Rand, and in thin liquidity, the Rand flirted briefly with the R13.50 levels. The fallout from the no confidence vote did not last very long, and the Rand staged a bit of a comeback before international politics stole the show at the end of the week. While the initial reaction after the vote subsided quickly, markets will be looking at any longer-term effects from the vote and further political instability going forward for any Rand trend. Over the weekend there was speculation of another cabinet reshuffle with a meeting of the ANC top-6 being scheduled. Will there be some retribution from the top-6?
Focusing on the Rand pre- and post- vote the expected weakening happened as soon as a result was announced with the Rand trading in the mid R13.10’s before the outcome of the vote. The public holiday last week did little to improve the fortunes of the Rand, and in thin liquidity, the Rand flirted briefly with the R13.50 levels. The fallout from the no confidence vote did not last very long, and the Rand staged a bit of a comeback before international politics stole the show at the end of the week. While the initial reaction after the vote subsided quickly, markets will be looking at any longer-term effects from the vote and further political instability going forward for any Rand trend. Over the weekend there was speculation of another cabinet reshuffle with a meeting of the ANC top-6 being scheduled. Will there be some retribution from the top-6?
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Another political storm that brewed last week was between the USA and North Korea with President Trump signaling his intention to do whatever is necessary to stop North Korea's nuclear threat. While this could be a bit of political jousting any suggestion that words will roll over into action can send markets into a frenzy. Just the jousting bit alone has caused some investors to run to safe haven currencies like Gold. Over the weekend the tough talk has subsided somewhat, and the markets can breathe a little easier for a bit, but it seems President Trump has shifted his sights to China. Trumps major issue with China is whether to investigate them for trade irregularities regarding intellectual properties. Should this gain traction, we could be in for a trade war between the two biggest economies in the world. Never a dull moment in the Trump presidency as it seems Trump could start an argument in an empty room at this point.
On Friday night Moody’s released a statement stating that they won’t do a rating review on South Africa rather saying that nothing fundamentally has changed in South Africa to warrant a rating review. This confirmation by Moody’s could serve to stabilise the Rand this week, and we could look for a week of sideways trading, barring any political events.
The cupboard is rather dearth of Top Tier data thus the impetus will fall on events rather than data for market direction. Some of the data that will be released this week will be both the ECB and FOMC minutes, while not expecting to be market moving there could be some excitement should there be any hint of tapering talk and when that will commence. As was stated above, this could be a Rand positive week as markets return to normal and investors start looking at Emerging Markets again. Keep an eye on the US stock markets and South African bond market to gauge whether investors are seeking risk again.
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On Friday night Moody’s released a statement stating that they won’t do a rating review on South Africa rather saying that nothing fundamentally has changed in South Africa to warrant a rating review. This confirmation by Moody’s could serve to stabilise the Rand this week, and we could look for a week of sideways trading, barring any political events.
The cupboard is rather dearth of Top Tier data thus the impetus will fall on events rather than data for market direction. Some of the data that will be released this week will be both the ECB and FOMC minutes, while not expecting to be market moving there could be some excitement should there be any hint of tapering talk and when that will commence. As was stated above, this could be a Rand positive week as markets return to normal and investors start looking at Emerging Markets again. Keep an eye on the US stock markets and South African bond market to gauge whether investors are seeking risk again.
TreasuryOne offers a daily market view and daily market rates in the morning and afternoon via WhatsApp. If you want to receive up to date market information, please add the following number to your contact list - TreasuryOne market rates no 061 109 3649 and complete the following form for us to add you to the service.
TreasuryOne Weekly Market View: Focus shifts to FED again (26 July 2016)
It has been a long time coming that the Rand is trading in such tight ranges, almost as if the Rand is going into hibernation for the winter. If only, it was that simple and we could be warm in front of our fireplaces safely in the knowledge that the Rand will remain range bound for a while. The Rand was close to testing the low against the US dollar for 2016 when it reached R14.15 in afternoon trade on Friday, as emerging markets are still on the front foot buoyed by the yield chasing of international investors.
The fear is that with the Rand stuck in tight ranges and struggling to break lower that the current momentum has run for a little too long. The very nature of market dynamics suggests that there is likely to be a pullback in the offing but with 2016 being the year where all normal market dynamics were thrown out the window one would not bet against the Rand continuing its rally and having another crack R14.1000 level.
While the coup in Turkey and Brexit kept us busy for the early part of last week, the latter part petered out into somewhat of a dire affair, with the ECB meeting going off without much of a hitch. In a pretty lacklustre press conference, Mario Draghi stated that the ECB will keep rates on hold and that they will only assess in the coming months what the effect of Brexit on the ECB will be and for now we must sit on our hands until the September meeting.
Back home our local MPC meeting continued much in the same vein as the European meeting with the MPC holding interest rates unchanged. The slightly worrying factor is the downward revision of growth for 2016 to 0%. It will not take a lot for growth to dip below 0% if there is another shock to our economy. It seems that the MPC is holding on to their inflation targeting framework and with the Rand comfortable in the past few months, no new inflation worries have been seen.
While the coup in Turkey and Brexit kept us busy for the early part of last week, the latter part petered out into somewhat of a dire affair, with the ECB meeting going off without much of a hitch. In a pretty lacklustre press conference, Mario Draghi stated that the ECB will keep rates on hold and that they will only assess in the coming months what the effect of Brexit on the ECB will be and for now we must sit on our hands until the September meeting.
Back home our local MPC meeting continued much in the same vein as the European meeting with the MPC holding interest rates unchanged. The slightly worrying factor is the downward revision of growth for 2016 to 0%. It will not take a lot for growth to dip below 0% if there is another shock to our economy. It seems that the MPC is holding on to their inflation targeting framework and with the Rand comfortable in the past few months, no new inflation worries have been seen.
On Friday, Fitch introduced a new methodology regarding the way they calculate the local currency debt of countries and South Africa was one of the countries that were downgraded. The local currency debt is just one notch above investment grade and in line with the external debt rating of South Africa. Although this has been shrugged off mostly by the market we can be sure when credit agency whispers start to flare up later in the year the reaction will be swift and volatile.
Looking ahead to this week, we have two major meetings, first the FOMC meeting in the US and then the Bank of Japan meeting on Friday. Although no action is expected in the US, the market will keep an ear out if the Fed will turn more hawkish after robust US data in the past month and that we can see a hike in December. This could be Rand negative should the Fed change their tone on Wednesday and should the mood turn a little we could see the momentum halt for emerging markets.
The Bank of Japan will announce whether or not they will introduce more stimulus into the economy to start the Japanese economy up again. With further stimulus in developed countries, the stage is set for Rand gains should the BoJ play along. The stimulus is not a given so the end of the week could be interesting.
Apart from the BoJ meeting on Friday, there will be US GDP numbers as well as South African Trade data. The US data is expected to continue to show a robust economy which could add to dollar strength should the Fed come out hawkish. The South African Trade balance does not have the market moving capabilities it once had and should not cause any ructions unless the print is appalling.
Looking ahead to this week, we have two major meetings, first the FOMC meeting in the US and then the Bank of Japan meeting on Friday. Although no action is expected in the US, the market will keep an ear out if the Fed will turn more hawkish after robust US data in the past month and that we can see a hike in December. This could be Rand negative should the Fed change their tone on Wednesday and should the mood turn a little we could see the momentum halt for emerging markets.
The Bank of Japan will announce whether or not they will introduce more stimulus into the economy to start the Japanese economy up again. With further stimulus in developed countries, the stage is set for Rand gains should the BoJ play along. The stimulus is not a given so the end of the week could be interesting.
Apart from the BoJ meeting on Friday, there will be US GDP numbers as well as South African Trade data. The US data is expected to continue to show a robust economy which could add to dollar strength should the Fed come out hawkish. The South African Trade balance does not have the market moving capabilities it once had and should not cause any ructions unless the print is appalling.
TreasuryOne Weekly Market View: 2016 The year of surprises
*the article was posted with TreasuryOne's permission
A lot has been happening in 2016. We have seen shock announcements in South Africa's finance ministers at the end of 2015, and thought that was a surprise. Well 2016 proved to hold even more surprises for us. TreasuryOne takes a look at some of them.
*the article was posted with TreasuryOne's permission
A lot has been happening in 2016. We have seen shock announcements in South Africa's finance ministers at the end of 2015, and thought that was a surprise. Well 2016 proved to hold even more surprises for us. TreasuryOne takes a look at some of them.
We are only half way through 2016, and so far 2016 can easily be seen as a year of many surprises. We have seen Donald Trump becoming the Republican Presidential candidate, the US Fed backtracking on their stance on interest rate hikes, Leicester City winning the English Premier League and the Lions being the top South African Franchise in the Super 18, to name but a few! The biggest surprise by far certainly has been saved for last week when the majority of British citizens voted to leave the European Union (EU).
The word “dead certainty” has become a word one utters with a couple of looks over your shoulder, a pair of fingers crossed and a rabbit’s foot in your back pocket, just for good measure, as it feels as if nothing can be “dead certain” any more – certainly last week the feeling regarding the voting in the referendum was that Britain will under no circumstances leave the EU. Although the leave camp won in a very close race entertaining 52% of the votes, a win is still a win.
As it happens with any shock announcement, the pandemonium started right away. Markets opened up in the Red as investors fled from risky assets as uncertainty rose and the Pound fell to its lowest level against the US dollar since 1985. The initial fallout from the vote was that the British Prime Minister resigned from his post, stating that he will continue for three months before finally leaving office. This was only the start of the political turmoil that washed through Britain over the weekend, with 11 members of the Labour Party resigning in protest as storm clouds gathered around the leadership of Party leader Jeremy Corbyn and his handling of the “remain.” campaign. There has also been a movement for a second referendum to be held, but this seems to be reactionary rather than having any legal substance. Further, it will be interesting to see Scotland’s reaction to the referendum’s results, as they have stated numerous times that they would like to remain in the EU, and a second independence vote could be on the cards.
The word “dead certainty” has become a word one utters with a couple of looks over your shoulder, a pair of fingers crossed and a rabbit’s foot in your back pocket, just for good measure, as it feels as if nothing can be “dead certain” any more – certainly last week the feeling regarding the voting in the referendum was that Britain will under no circumstances leave the EU. Although the leave camp won in a very close race entertaining 52% of the votes, a win is still a win.
As it happens with any shock announcement, the pandemonium started right away. Markets opened up in the Red as investors fled from risky assets as uncertainty rose and the Pound fell to its lowest level against the US dollar since 1985. The initial fallout from the vote was that the British Prime Minister resigned from his post, stating that he will continue for three months before finally leaving office. This was only the start of the political turmoil that washed through Britain over the weekend, with 11 members of the Labour Party resigning in protest as storm clouds gathered around the leadership of Party leader Jeremy Corbyn and his handling of the “remain.” campaign. There has also been a movement for a second referendum to be held, but this seems to be reactionary rather than having any legal substance. Further, it will be interesting to see Scotland’s reaction to the referendum’s results, as they have stated numerous times that they would like to remain in the EU, and a second independence vote could be on the cards.
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The most important question regarding the “Leave” vote is when the Article 50 clause is going to be triggered by the next Prime Minister. The activation of this trigger would be the first definite step for Britain to leave the EU, but George Osborne, Chancellor of the Exchequer, stated that there needs to be a “clear” view of the future of the British Economy under the new Prime Minister before the article can be triggered. In light of that, Angela Merkel stated that no informal discussions will take place until Article 50 has been activated. There have also been calls from other EU countries that Britain’s exit from the EU must be done as swiftly as possible. It seems that Britain is in for some hard negotiations and tough times for the immediate future.
There have been some rumours that some multi-national corporations are looking to quit Britain, and this will have a massive impact on the UK economy and a recession will definitely be on the cards. Expect to read more and more about Article 50 and various conspiracies surrounding it in the coming months. The other fear for the European Union is the precedent that this will set for other disillusioned members of the EU. Will the Netherlands be next or will France perhaps announce a similar referendum or will it be our old friend Greece that goes for their second round of votes? One thing is for sure: the immediate future will be marked by uncertainty, and for the Rand uncertainty is not a good thing. Expect very jittery trade around anything related to the UK and should there be any bad news out of Emerging Markets the Rand defenses will easily be broken.
The Brexit announcement was so overwhelming that Janet Yellen’s address to Congress was mostly overshadowed by the market. She did not state anything markedly different than the FOMC statement of two weeks back and was very dovish in her statements. The news from Brexit and the uncertainty that it has brought with it, has impacted on the market views of rate hikes in the US. A hike this year has been priced out, as a hike this year will bring further market instability and more volatility. Some market observers have called that the next move for the Fed is to cut rates and have stated that the hiking cycle has come and passed.
There have been some rumours that some multi-national corporations are looking to quit Britain, and this will have a massive impact on the UK economy and a recession will definitely be on the cards. Expect to read more and more about Article 50 and various conspiracies surrounding it in the coming months. The other fear for the European Union is the precedent that this will set for other disillusioned members of the EU. Will the Netherlands be next or will France perhaps announce a similar referendum or will it be our old friend Greece that goes for their second round of votes? One thing is for sure: the immediate future will be marked by uncertainty, and for the Rand uncertainty is not a good thing. Expect very jittery trade around anything related to the UK and should there be any bad news out of Emerging Markets the Rand defenses will easily be broken.
The Brexit announcement was so overwhelming that Janet Yellen’s address to Congress was mostly overshadowed by the market. She did not state anything markedly different than the FOMC statement of two weeks back and was very dovish in her statements. The news from Brexit and the uncertainty that it has brought with it, has impacted on the market views of rate hikes in the US. A hike this year has been priced out, as a hike this year will bring further market instability and more volatility. Some market observers have called that the next move for the Fed is to cut rates and have stated that the hiking cycle has come and passed.
This week we can expect more fallout from the Brexit debacle as further news hit the headlines on the effect of Brexit on the UK economy and politics. There is an expectation that the Pound will remain under pressure as the full extent of the Brexit becomes more evident. Other market-moving items for the week, is the EU summit on Tuesday. In light of last week’s event this summit has grown in significance and markets will be watchful of any headlines from the summit.
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The next issue on the agenda will be ECB monetary forum that will have a conclusion on Wednesday. What was supposed to be a little chin wagging between Central Bankers and economists in the laid back atmosphere of Sintra, Portugal, has turned into a nightmare situation for Mario Draghi, who has to start to take steps to keep the Eurozone economy chugging along in the backdrop of Brexit. Although no immediate changes is expected some difficult questions will be asked of Draghi when the conference concludes on Wednesday.
US and UK GDP numbers will also be released this week, but both will be overshadowed by Brexit stories, as the UK number will be a number pre-Brexit and the US GDP number will fade into the background much like Yellen’s speech of last week. Uncertain times are ahead, and we can expect volatile moves in the Rand with a test of R15.40 a definite level to start selling US dollars and any break below R15.00 a particular buying opportunity.
US and UK GDP numbers will also be released this week, but both will be overshadowed by Brexit stories, as the UK number will be a number pre-Brexit and the US GDP number will fade into the background much like Yellen’s speech of last week. Uncertain times are ahead, and we can expect volatile moves in the Rand with a test of R15.40 a definite level to start selling US dollars and any break below R15.00 a particular buying opportunity.
TreasuryOne Weekly Market View: BREXIT
*the article was posted with TreasuryOne's permission
A lot has been speculated and written regarding Brexit and it's impact on financial markets and exchange rates. Below is a article written by TreasuryOne discussing some of the implications of the Brexit vote and what it holds in store for world markets in future.
*the article was posted with TreasuryOne's permission
A lot has been speculated and written regarding Brexit and it's impact on financial markets and exchange rates. Below is a article written by TreasuryOne discussing some of the implications of the Brexit vote and what it holds in store for world markets in future.
2016 will be remembered as the year when everything we thought we knew about the world and the various markets blew up in our faces and sends us home with a chiding. The US economy was supposed to grow, and the Fed would still puff out their chest, and you could hear the echoes of U-S-A, U-S-A through the collective market corridors. There were four rate hikes promised; Donald Trump was supposed to be the laughing stock and Britain will scoff at the idea of exiting the European Union.
Fast forward to today, 24th June 2016, and the US Fed has turned very dovish in the recent past; Donald Trump is the Republican Presidential candidate, and Britain has voted to leave the European Union. Let’s leave the 2 US shocks safely across the Atlantic and focus on the latest burning issue on the table: the Brexit that has officially been confirmed.
One can expect the average man in the street who voted for Brexit, will greet the morning with a triumphant punch in the air. The main selling points being immigration control, being self-reliant as an economy which can make decisions on their own, surely speaks to the patriotic sense of a man and can easily be seen as the main drawcard. That’s all fine and well, and each man has got its reasons, but expect today to be a bloodbath in the markets, the question being how will markets be affected in the next couple of days?
Fast forward to today, 24th June 2016, and the US Fed has turned very dovish in the recent past; Donald Trump is the Republican Presidential candidate, and Britain has voted to leave the European Union. Let’s leave the 2 US shocks safely across the Atlantic and focus on the latest burning issue on the table: the Brexit that has officially been confirmed.
One can expect the average man in the street who voted for Brexit, will greet the morning with a triumphant punch in the air. The main selling points being immigration control, being self-reliant as an economy which can make decisions on their own, surely speaks to the patriotic sense of a man and can easily be seen as the main drawcard. That’s all fine and well, and each man has got its reasons, but expect today to be a bloodbath in the markets, the question being how will markets be affected in the next couple of days?
The short answer being those market participants have run to safe havens like expected on the news on Brexit. We have seen Gold jumping above $1300, GBP/USD below 1.3500 for the first time in 31 years and EUR/USD below 1.1000 again. This has meant the Rand is trading above R15.5000 this morning after trading at R14.3000 a mere 10 hours ago. So much for the dead certainty that Britain will remain in the European Union and for everybody’s best-laid plans.
So what now for the European Union and Britain, apart from causing chaos in world markets. Britain has two years if David Cameron triggers a clause in the Constitution, to exit the European Union, which will be two years of extensive negotiations and more volatility that can follow. Speaking of Cameron, he might not even see the next couple of weeks, and there will be major pressure on him to resign from the Brexit brigade, and the new Prime Minister will certainly trigger the clause mentioned above.
The economy of Britain is bound to take a bit of a knock as a result of the Brexit vote, as most of Britains' trade agreements will have some EU deal in place, which will have to be disbanded and hopefully reestablished. The terms will probably be at worse than the initial conditions due to the bargaining power the EU had and the UK not having the same pull. This could lead to a recession, unemployment, and with Britain running twin deficits, a pullback in capital from foreign investors will only result in more uncertainty and further depreciation in the Pound.
The European Union now faces a conundrum, who will be the next country to decide to hold a referendum, with rumors already spreading that Holland, Spain, and France motioning that they want to hold a referendum. There is also another issue whether Scotland would want to leave the EU after they voted massively for staying in the EU, and another independence vote could do the rounds. There is also the small matter of Greek debt has been shared around the EU, and should members decide to leave, how will that situation play out. In terms of politics, this is setting up to be an exciting time.
In the short term it looks like the predictions that were made regarding Brexit is unfolding, the run to safe havens has happened, and it seems like the jittery trade is set to continue, and any negative news out of EM’s or Britain can set the Rand running to the hills. The initial market reaction has seemed to have plateaued a bit with the Rand trading in R15.5000 – 15.6500 range for the past hour, but it only needs a little shove to start a run again.
The economy of Britain is bound to take a bit of a knock as a result of the Brexit vote, as most of Britains' trade agreements will have some EU deal in place, which will have to be disbanded and hopefully reestablished. The terms will probably be at worse than the initial conditions due to the bargaining power the EU had and the UK not having the same pull. This could lead to a recession, unemployment, and with Britain running twin deficits, a pullback in capital from foreign investors will only result in more uncertainty and further depreciation in the Pound.
The European Union now faces a conundrum, who will be the next country to decide to hold a referendum, with rumors already spreading that Holland, Spain, and France motioning that they want to hold a referendum. There is also another issue whether Scotland would want to leave the EU after they voted massively for staying in the EU, and another independence vote could do the rounds. There is also the small matter of Greek debt has been shared around the EU, and should members decide to leave, how will that situation play out. In terms of politics, this is setting up to be an exciting time.
In the short term it looks like the predictions that were made regarding Brexit is unfolding, the run to safe havens has happened, and it seems like the jittery trade is set to continue, and any negative news out of EM’s or Britain can set the Rand running to the hills. The initial market reaction has seemed to have plateaued a bit with the Rand trading in R15.5000 – 15.6500 range for the past hour, but it only needs a little shove to start a run again.
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Corner of Southern Cross & Aramist
Waterkloof Glen ext 2
Pretoria
South Africa
Postal Address:
PO Box 1103
Faerie Glen
0043
South Africa
Contact details
Pretoria: 086 111 4088
International: +27 (0)12 003 2059
website: http://www.treasuryone.co.za/