Sasfin: Forex Daily Market – Trading conditions have deteriorated over the past 3 months

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Today’s talking point

Standard banking PMI: November

Expected: 49.0

Previous: 48.6

Analysis: Economic conditions have deteriorated in three of the past four months, which should be poorly reflected in the economic data for the third quarter. With the steelworkers’ strike that was primarily responsible for worsening trading conditions in October now over, expectations are for a pickup in the last two readings of the fourth quarter. That said, additional headwinds for the private economy, namely the return of load shedding, high commodity prices, weak fiscal momentum and lack of reforms, will delay the return to full production capacity, suggesting that ‘a rapid recovery in the coming months could be unlikely.

Rand update

In the last trading session of the week, the recovery that began at the start of the week was consolidated. Interestingly, this has happened against the backdrop of a sharp upsurge in infections that have surpassed 11,000 per day and continue to rise. The epicenter appears to be Gauteng and will undoubtedly disrupt business as many households isolate themselves and take sick leave while waiting for symptoms to subside. However, as infections increase rapidly, the symptoms of this latest variant of Omicron appear to be milder.

Although it is still early days, if the symptoms are milder, it can give the world something to cheer about instead of fear. Suppose the virus has mutated into a much less severe variant and is highly transmissible. In that case, it could very well spread to the world’s population much faster and help bolster global levels of immunity that make Covid restrictions redundant as hospitalizations remain under control.

Equity and other riskier markets regained lost ground, with new records in sight before the end of the year. While politicians appear to have overreacted to a variation that may be a blessing in disguise, financial markets appear to be well positioned to profit. Let us not forget that there is still a huge amount of stimulus measures yet to befall the global financial market system, which will translate into impressive performance in risk markets.

Although South African tourism has taken a hit at the worst possible time, there may still be something to look forward to before the end of the year if this latest mutation signals the start of the end of the pandemic. Scientific analysis must confirm what many anecdotally describe as a milder variant. This could become a major market driver in the coming weeks. The good news on this front has the potential to generate a powerful risk rally that will capitalize on any stimuli that are still playing in the background. This may reflect the reasons why the ZAR has stuck its depreciation and appears to be in a wait pattern until more information is received.

Update of obligations

Political volatility could reach Parliament shortly. Business Day reports that the “Supreme Court of Appeal (SCA) has ordered the new Speaker of Parliament, Nosiviwe Mapisa-Nqakula, to take a” new decision “on how to organize a vote of no confidence in Ramaphosa “. The move comes after the African Transformation Movement (ATM for short) called for a secret no-confidence vote to be cast against the president. The reasons given in the court document are “the ATM’s claim that state-owned entities collapsed under the President’s watch, that he misled Parliament by saying he didn’t there would be no shedding but that it had happened, and other aspects of the alleged poor performance of his role.

Data released yesterday showed that Eskom’s load shedding resulted in a 3.6% year-on-year decline in electricity production in October. It is clear that progress on reform is slow. ATM filings were submitted in February 2020, but power outages remain frequent. However, the reasons given for the failure of SOEs and the insufficiency of Eskom are too structural to be improved in a single term. The president is viewed positively by civil society, while some kudos are due as he has sought to maintain the political identity and legitimacy of the ANC in difficult times. Although no-confidence votes are a regular part of South Africa’s democratic landscape, given years of debauchery and political nepotism, they have not been successful.

Local political developments are unlikely to be significant market drivers. Instead, the focus will be on the US non-farm workforce for release, where another solid result is expected. Keep an eye out for wage growth as a sign of the side effects of inflation. In this context, the ZAR remains a little undecided. Concerns about the new variant continue to circulate nationally, with alarmists pointing to a much higher degree of transmissibility, although anecdotal evidence suggests milder symptoms. Data confirms an increase in infections in Gauteng in particular. The impact on hospitalizations will drive government policy. For various reasons, this wave will be much smoother than previous waves.

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