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Weekly Market Update | #eBizMoney | Andre Botha

Weekly Market Update | #eBizMoney | Andre Botha

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After the fallout of “Brexit” and the uncertainty that followed in the weeks after the vote, the Bank of England (BoE), tried their best to ease market fears, by leaving interest rates unchanged, but in the same breath stating that some monetary action will probably be introduced in August.

This calmed nerves somewhat in that it appeased the naysayers who wanted a cut in the interest rate by promising them some movement in the future and the hardcore sceptics in not acting first to see how leaving the European Union will affect the British Economy.
It seems that “Brexit” will enjoy a long shelf life with “Brexit” becoming the go-to answer for a lot of governments and corporations decisions in the next couple of months when speaking about Europe and the UK.
This will only fuel uncertainty and without a previous measure of how this will affect markets we are at the mercy of the various Lieutenant Generals in the markets.

Emerging Markets (EM) are basking in the recent “risk-on” sentiment, with yield-hungry investors throwing funds into EM bond and equity markets. South Africa specific we saw 31 days of inflows into the equity market and 20 days of inflows into the bond market.
The inflows are ideal for the Rand, and we saw the Rand trying a run to the R14.00 level. This is all great and dandy if the world was not so filled with uncertainty and major Central Banks operating economies.

The exact nature of the capital inflows was seen on Friday evening when the Turkish military launched a failed coup to overthrow the Turkish government. The coup did not get off the ground essentially and turned into a farce than an earnest attempt to overthrow the government.
On first reporting, the story EM currencies were sold off like there was no tomorrow and lost 40 cents in 5 minutes in New York trade. The fact of the matter is that the inflows are solely there for the yield and at the mere mention of uncertainty EM’s will be sold off, and wild swings in the currency will be experienced again.This week should be relatively uneventful unless there is another coup or terrorist attempt that will affect the “glow” of EM’s or the SARB pulls a rabbit from the hat and increases interest rates at their MPC meeting later this week. With the Rand in some stable territory, inflation seems to be in check and will give the SARB some reprieve regarding their interest rate decision. Then again 2016 has been a crazy year, and a previous sense of normality cannot be bargained on now.

Andre Botha in conversation with eBizRadio’s Nick von Stein

PODCAST | Click HERE to listen

Other central banks that are meeting on Thursday will be the European Central Bank (ECB) in their first meeting after “Brexit” and Mario Draghi will surely get some questions regarding that. Moreover, it is not expected that there will be any change happening in the ECB’s interest rates, but it will be of importance what Draghi indicates to be the way forward for the ECB and monetary stimulus.

We expect the Rand to make a run at the R14.10 low of the year as the momentum is firmly on the EM side but gains are harder to be had, and we could see the Rand failing to break R14.10 and head north as momentum and the local election risks start to seep into the market.

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