EDITORIAL: SA markets get an early Christmas present
Rand starts December on a firm footing, building on its best November against the dollar in about three decades
To say things are looking up for South African markets ahead of Christmas would be a bit of an understatement.
After a turbulent 2018, in which it was hurt by everything from US-China trade tension to the debate about the ANC’s policy on expropriation without compensation, the rand began December on a firm footing, building on what was its best November against the dollar in about three decades.
The latest supportive news was relief at the G20 meeting in Argentina taking place without an escalation in the US-China trade dispute. But it’s unclear how long that truce will last because, as investors have seen before, one tweet can dramatically alter the landscape.
For now, they are just relieved at the agreement that the US will not impose further tariffs on China for 90 days. The relief was particularly acute in Asian shares, which tended to suffer the most in previous rows. That lifted markets across the board, with gains in technology stocks propelling Naspers up to more than 8% higher at one point, more than its gain for all of November.
The rand rose as much as 2.1% early on Monday, reaching its strongest level since August against the dollar. It also reached almost four-month highs against the pound, which has been held back by its own domestic developments.
It’s almost a foregone conclusion that UK Prime Minister Theresa May will lose a parliamentary vote next week on the Brexit withdrawal agreement she negotiated with the EU. That will bring with it the possibilities of a chaotic no-deal Brexit and the fall of her government, with dire consequences for the British economy and currency.
For the SA currency and assets in general, the mood could not be more unlike what it was four months ago.
Late in July, President Cyril Ramaphosa put an end to whatever remained of the “Ramaphoria” that accompanied his victory in the ANC elective conference in December.
His announcement that the ANC would seek to change the constitution to expropriate land without compensation, although there’s no legal or constitutional impediment to this at present, dented confidence while we could least afford it. Due to events in global markets, the last thing needed was an unnecessary debate about property rights.
This, together with US President Donald Trump’s trade dispute with China and Turkey’s financial meltdown, also partially linked to trade a dispute with the US over the arrest of an American pastor, created a toxic environment for the rand and it was no shock when it went into freefall. It was rather unfortunate that this also came while international oil prices were surging, meaning South African consumers were hit with record-high oil prices, and the obvious implications for inflation and interest rates.
The inflation outlook deteriorated to the degree that the Reserve Bank applied in November the bitter medicine of the first interest-rate hike in more than two years, even as it was revising downwards its growth outlook for 2018 to a paltry 0.6%.
That level of growth is far from what’s needed in an economy that cannot find work for more than 27% of the adult population, counting only those who haven’t stopped seeking work.
With consumers set for a cut of about R2/l in petrol prices, the rand’s strength augurs well for the inflation outlook and the possibility of the Bank holding off interest-rate hikes in coming months, despite its protestations to the contrary.
But it would be unwise to count on any rates respite. The monetary policy committee has gone to great lengths to show that it is not exactly full of confidence that this benign environment will last.
It certainly seems to have very little faith that the rand, still down 10% against the dollar in 2018, will hold on to its recent gains or that oil prices will stay at current levels.
So it would seem that the feel-good factor that came with the recent rally will not translate into good news on the interest-rate front.