And as we head into the final lap of Q3, the markets continue to keep everyone on their toes. Following last week’s highly anticipated Jackson Hole symposium and the brief but hawkish address by US Fed Chair Jerome Powell, investors were expecting a week of major market reactions.
And that’s exactly what they got.
We saw a week in which the Rand unravelled to hit its weakest level in 2 years against the US Dollar, breaching R17.30/$, as the greenback began handing out beatings to most currencies globally. So plenty to review here for the week.
Key Moments (29 Aug – 2 Sep 2022)
But we’ll get to that in a moment. First, here were the week’s top headlines:
- US Jobs Report – Employers added 315,000 jobs last month, beating expectations of 275,000 as the US labor market continues to show resilience.
- SA Extends Trade Surplus – Reports on Wednesday showed that SA’s trade surplus beat expectations of circa R20bn to record R24.7bn in July.
- Eurozone Inflation Bites – Inflation in the euro zone hit another record high of 9.1% in August, fuelled by skyrocketing energy prices.
- Commodity Concerns – Oil prices began to climb late in the week on expectations that OPEC+ may reduce output…pressure at the pump incoming?
So let’s get started with the local unit’s movement for the week, which opened in SA markets at R16.97/$ against the greenback.
Riskier assets such as Rand were anticipating a week of difficulty as investors were likely to pile back into the dollar, as expectations grew on another bumper rate hike for the US in September.
The local unit made small gains through the day and showed in the mid R16.70s on Tuesday before weakening to test R17/$ in after hour trading.
As the market gained in early trading on Wednesday, Rand investors were awaiting the only major local economic data release for the week in the form of SA’s trade surplus…
…which was pretty much the only good news for the local unit for the week.
SA recorded a trade surplus of nearly R25bn in July, as exports rose by 24.3%, while imports increased by 41.6% YoY.
The promising news did come with some warning though, as experts remain cautious that a deteriorating global outlook would weigh heavily on South Africa’s export potential in months to come.
Meanwhile, looking abroad, we saw a lot of midweek action…
The Euro has been teetering around parity with the dollar for several weeks now and was dealt another couple of blows on Wednesday…
Inflation in the 19-country Eurozone hit 9.1% in August to break its record high of 8.9% in July despite an improved unemployment rate of 6.6%.
This marks the highest inflation rate since record-keeping for the eurozone began back in 1997! Yikes!
The major contributors were food which rose by 10.6%, and energy by a dizzying 38.3%…
…the most concerning though, is that there is little likelihood of this improving anytime soon.
Russia has halted gas supply (again) through its key supply route NS1 to Europe, claiming the shutoff was necessary for maintenance work.
And across the channel in the UK, the picture isn’t a whole lot more promising.
Sterling lost a staggering 5% against the US dollar in August, the currency’s largest monthly drop since 2016, as it dipped below £1.16/$ amidst looming recession fears.
As clouds gather over the British economy, there are forecasts of poverty spreading across the UK this winter which highlights the deepening woes on the horizon for the Brits…prospects of the GBP hitting parity against the dollar, perhaps?
Well, it’s certainly not a outlandish thought anymore and is probably becoming less so as winter beckons.
While most economies continue to ebb and flow, the US dollar has been riding high since last week’s Jackson Hole symposium, where Fed Chairman Powell emphasized that rates need to be high “for some time” to combat inflation.
Investors continued to pile back into the world’s reserve currency ahead of the crucial jobs report due at the end of the week. But before that, solid US manufacturing figures on Thursday were enough to push the greenback forward as the Rand flopped to R17.18/$, and the Euro dropped to € 0.995/$ by early evening.
And then in other news:
- China kicked off the new month by announcing that the major city of Chengdu had been placed under a lockdown. The Chinese economy continues to slow, with manufacturing and industrial production already having failed to achieve expectations in July while retail sales advanced by a meagre 2.7% YoY.
- August turned out to be a dismal month for stock investors as the 3 major indexes ended the month off with the worst overall performance in 7 years. Dow Jones took a 4% drop, while S&P 500 and Nasdaq shed closer to the mid-4 % range. Meanwhile, crypto big boy Bitcoin fell a staggering 13% in August, while the markets number 2, Ethereum, dropped 5.6% over the same period.
And just like that, it was Friday, which meant US jobs data would take centre stage…
…as investors remained cognisant that signs of company’s pulling back on hiring would likely refuel recession flames.
However, that wasn’t the case.
The data released on Friday showed that the US economy added 315,000 jobs in August, beating analysts’ 275,000 expectation despite the unemployment rate rising to 3.7% from 3.5% in July.
No doubt, the jobs report will play a significant role when the Federal Reserve meets later in the month to decide on the ongoing monetary policy and its plans to stifle rampant inflation rates.
And as we know, with new data comes new concerns…
…this time around, in the form of a strong jobs market that throws a spanner in the works of the Fed, who are trying to cool the economy.
But something doesn’t quite add up here:-
How is this a heating economy based on the job numbers, when the economy is technically in recession?
Which begs the question: What percentage of these added jobs are spouses that have been forced into working, or persons taking on a second or part-time job in order to make ends meet with the steep increased cost of living?
That could be a very telling picture…
As we edge closer to the next monetary policy meeting, there seems to be a growing fear that the Fed’s inflation-beating tactics may further damage the economy, which is already in a precarious position following 2 quarters of contraction.
It’s going to be interesting to see how this one pans out over the next few weeks.
Back locally, the jobs data from the US saw the local unit plummet further to close the week on R17.30/$ with little indication of a significant turnaround on the horizon… not in the short term anyway. And that about wraps it up for the week.
The Week Ahead (5-9 Sep 2022)
And hurtling into September we go…almost 3/4 of the way through the year already!
Here are the major market movers scheduled for the next five days:
- SA – S&P Global PMI, GDP Q2
- EU/UK – GDP Q2, ECB Interest Rate Decision, UK Services PMI
- US – ISM Non-Manufacturing PMI
As expectations strongly lean toward another aggressive 75 basis point hike by the Fed in the next few weeks, it’s fairly safe to expect the currency markets to be at their volatile best, and for investors to search for safe havens…
…and as for riskier options such as the Rand – which has already bled approximately 20% to the dollar since peaking at R14.39/$ in April – the volatility is undoubtedly going to intensify over the foreseeable future.
Strap in, there’s going to be a few bumps along the way!
We’ll be using our Elliot-wave based forecasting system to help us through this difficult time and give us the information we need to make educated, informed and rational decisions. You can too! Look forward to helping you on the journey.
Please take our Rand forecasting service for a test-drive! This will give you access to the same charts we are to give us and our clients the likely direction of the Rand – ahead of time, enabling you to make educated and informed decision. Simply use the link below to get access now. No charge. No card. All yours to trial for 14 days.
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To your success~ James Paynter