Interest rates in focus:
Inflation numbers: The latest release of the Consumers Price Index (CPI) YoY (Apr) came in slightly lower at 4.4% from the three month high of 4.5% (Mrt). The Inflation rate is still within the SARB’s target range of 3-6 percent.
The 2019 National Elections have come and gone and the “New Dawn” is upon us as the Governing party set the tone for economic growth. This will be no easy task and an uphill battle of note as President Ramaphosa will need to effectively deploy political capital to boost growth.
The reinstatement of the Policy and Research Advisory unit is a step in the right direction as this will give the President clear line of sight over the design and implementation of economic and Investment policies.
Moody's said South Africa's credit rating remains at BAA3 with a stable outlook which they will carefully look at. Corruptions at SOE’s are also high on the list of items the rating agency will look at as the new cabinet members take their seats. Moody’s next outlook is only scheduled for November but might move to an earlier date if needs be.
Favourable ratings will keep government in favour with international investors but a downgrade to sub investment level will see substantial capital outflows from the South African economy.
Eskom is still a real concern for ratings agencies as Moody’s stated the South African government’s debt burden was expected to rise to 65% of GDP by 2023 and more than 70% when including guarantees to the troubled power utility. Debt to GDP will be a massive burden to the growth of the economy moving forward.
With Brent Crude Oil has rallied over 40% this year and is set to continue gaining momentum as the OPEC+ nations are set to continue with supply cuts. If Brent Crude Oil prices continue to rise then we might expect our petrol prices to rise coupled with a weaker Rand (ZAR).
Unfortunately for the South African consumer analysts are forecasting that we might see a litre of unleaded 95 reach the R20 mark before the end of 2019. Adding on to the pressure is the new Carbon Tax which takes effect from the 5th of June. The new Carbon Tax will add an additional 9 cents to a litre to petrol and 10 cents to Diesel.
The South African Rand (ZAR) is reacting as expected and highlighted in our Election Report that we might see the local currency weaken after the elections if history is anything to go by. The Rand has given back all the pre-election gains and might weaken even further as the international Trade environment weakens further.
Deutsche Bank also came out and told its clients on Friday that they should consider selling the Rand (ZAR) as the fundamentals remain weak. Struggling SOE’s will come back into focus of the ratings agency Moody’s with its next review scheduled for November 2019.
South Africa has strong economic ties with China which has seen the respective currency pairs lose ground against the Dollar (USD). There is a strong correlation between the USDZAR and USDCNH currency pairs that should be considered when trading.
The USDZAR currency pair is still trading at the bottom of the channel formation (green lines) and need to close above 14.55 to support another leg higher.
Source - Bloomberg
What can I trade today?
When and what time is the South African interest rate announced in South Africa?
23rd of May 2019 at 15.00 SAST.
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