Here were some of the big headlines from the week: Rand breaks R15/$ – who would have thought we would see these levels to the Dollar again?
GDP Q3 – a massive recovery according to the numbers, but how much has the economy actually recovered?
Brexit comes to a head – the deadline was set, and with every avenue having been explored for 4 years, will there finally be a final say on this fiasco?
Oil’s recovery – from just a few months ago when Oil capitulated to zero and below, who would have thought we would see $50/barrel again so soon?
Stimulus stalls – Congress just cannot seem to get it right with either party budging on their bill proposals.
And as the week began, all eyes were on the GDP Quarterly results locally in SA.
This would be for Q3, following the shocker of last quarter’s contraction of 51%.
Whatever the figure, it was going to need to be taken in context – in terms of what the annual GDP gain/loss has been, rather the change from quarter to quarter, as this year has thrown all standard measuring concepts.
And as expected, GDP jumped with a remarkable figure of 66% gain, quarter-on-quarter.
But don’t be fooled. As Fin24 put in their detailed analysis on “The good, the bad and the ugly behind SA’s GDP numbers”.
The thing to note is that this quarter’s gains (Q3’s) are relative to Q2’s figures. So when you have had a contraction of 51% and then a gain of 66%, those figures are relative to one another. One example is that the restaurant industry is up 7000% in Q3 but compared to what in Q2?!
So if we look at SA’s annual GDP stats, we are still sitting at a 6% contraction.
And that is where the difference arises.
Regardless, there has been some recovery, and the Rand took kindly to this, breaking down below the R15/$ level.
Who would have thought we would see these levels? After we hit R19.33 in April?
The Rand has certainly amazed after it seemed the market had reached a point of no return back then.
But once again: remember this, when everyone has turned negative against any market, it means that that market has reached an extreme, and it MUST reverse because there is nobody left to move the market further.
In the case of April, it was extreme sentiment Rand-negative.
Now, the tables have turned and everyone is now Rand-positive!
And then in other news, we had:
Brexit came to a head this last week with the talks hitting a brick wall while the deadline neared. The net result was Boris Johnson having to make an unplanned trip to Brussels to meet the EU President. However, on Thursday afternoon, he spoke for the first time since the meeting saying there is a “strong possibility” of no deal. With the deadline of Sunday approaching fast, that was not the news many were looking for.
UK had it all going on, with the rollout of the PfizerBioNTech vaccine hitting the shelves, as frontline medical workers and the high-risk public became the first to receive the jab as part of the inoculation programme. This promises to be a game-changer but is likely too late to stop a second wave that is currently affecting most countries.
Despite that, Oil has risen to new highs, recovering back to $50 a barrel. Who would have thought, considering where we are today, and where the pandemic was at when Oil crashed into the negatives earlier this year? Once again, it proves how irrational markets are – no fundamental change has taken place!
Over in the US, Stimulus talks also stalled, even after the US jobs numbers showed a less than expected growth in the economic recovery. The Republicans were not interested in the Democrats $908bn proposals, and neither were the Democrats interested in Republican proposals. It was a gridlock of note while evictions and jobless rates continue to rise, breaking to 853,000, instead of the estimated 730,000, the highest since September!
And then, of course, the US election outcome saga continues. With the electoral college deadline being the 14th, Texas raised the stakes by taking Michigan, Georgia, Wisconsin and Pennsylvania directly to the US Supreme Court, arguing that electors from those states should not cast their votes because the states unconstitutionally changed their voting processes and that the irregularities in those states undermined what Texas had done in having a free and fair election.
This was followed by 18 other states joining the Texas lawsuit, as did the Trump campaign. And followed by 22 states opposing this in support of the 4 swing states. We will now see what comes of this, being what should be the finale of more than a month of confusion.
Stay tuned, should the Supreme Court take up the case, as it seems they must, this could get very interesting.
As for the Rand, following the news around GDP, we had seen that break to below R15/$ but it didn’t last.
On Thursday, we broke back above, and on Friday extended those losses to test R15.20 on Friday afternoon.
This was following Stats SA announcing that manufacturing and mining output for October 2020 decreased by 3.4% and 6.3% y/y respectively.
It is certainly going to be a long road for economies to get back to level pegging!
The Rand eventually closed the SA day at R15.16/$, as we awaited global news to trigger the next move…
The Week Ahead (14-18 December 2020)
Firstly, we would like to thank you for your support, responses, questions and reading of our emails this year. It has been one of the most tumultuous in our more than 15 years in business, and we have appreciated your support. This will be our last Rand Review of 2020, but we still have 2 forecasts left on Wednesday and Friday for our subscribers.
As we head into the new week and toward the end of the year, there will soon be a slowing of economic events, as we saw already with nothing of note locally, only global ones:
- USA – Retail Sales, Fed Monetary Policy & Interest Rate Decision, Jobless Claims, GDP
- EU & UK – Interest Rate Decision, BoE minutes, GDP
So plenty triggers here for market moves.
And that is apart from potential lockdowns globally…and, of course, developments in the US as the election challenges and evidence continue to unfold, leaving the electoral college in disarray.
As well as the Brexit finale playing out, while Congress’s stimulus bill will continue to be a point of discussion. We will keep looking at our Elliott Wave based forecasting system to give us some clues, with two key levels that we will be watching to confirm our larger degree trends.
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