Forex Market Report

The power of social media came to the fore yesterday as the big boys got burnt. Unfortunately, the madness that spread through sections of the US equity market spooked investors on the whole which hurt the Rand as a risk asset. 

Market News

• The Rand may have fallen against the Dollar yesterday, but percentagewise it was a tiny move compared to the eye-watering surges in some US stocks. We opened at R15.09 to the Dollar and traded progressively weaker to hit R15.29 in the evening session.
• Yesterday was supposed to be all about the FED and Jerome Powell’s media briefing, but the only name being reported on was GameStop. This little-known computer game chain store had been identified as weak by big US hedge funds, with them taking short positions on its share price, a situation where you can make money as the share price drops. Activist private investors saw an opportunity to hurt the “fat cats” and they used social media platforms to encourage millions of people to buy GameStop shares which will cost the hedge funds money as the share price rises, and with GameStop rocketing 1700% in January alone, it is safe to say the plan worked. Yesterday was the culmination of this buying frenzy; with the activist investors now widening their scope to other shorted stocks. This promoted risk-off sentiment across the wider market and the Dollar rose as a safe haven asset. 
• While playing second fiddle to the GameStop fiasco, Jerome Powell did speak as planned, and as expected the FED has remained anchored to their ultra-loose monetary policy, with US interest rates staying at close to 0% for the foreseeable future. Powell did reference a slowing in the US economic recovery, thanks to rampant COVID numbers and a patchy vaccine rollout. This was taken in a negative light by the market and added to the risk-off sentiment supporting the Dollar while hurting the Rand. 
• The following is from Reuters and talks to the various factors driving Dollar strength: The Dollar extended gains against most currencies on Thursday as a stock market rout due to concerns about excessive valuations boosted safe-harbour demand for the US currency. Concerns about a short squeeze among hedge funds, worries about corporate earnings, and delays in coronavirus vaccinations have slammed the brakes on a heady rally in global equities, which could continue to lift the Dollar in the short term. In addition to concerns about corporate earnings and the economic outlook, worries that hedge funds squeezed out of short positions in GameStop Corp and similar companies will take profits on other assets also fueled risk aversion.
• Locally, we got two bits of encouraging news with Health Minister, Zweli Mkhize confirming that our first batch of COVID vaccines will arrive on Monday the 1^st of February; while our medical regulatory body approved the use of Ivermectin to treat COVID patients on compassionate grounds. The first batch of vaccine doses will be spread across our healthcare workforce. A groundswell of support for Ivermectin as a treatment has seen the authorities concede. These announcements couldn’t stop the Rand’s slide, but it is encouraging to know we are taking positive steps in fighting the virus medically. 
• Local market data today sees our December producer inflation print which is forecast to drop from 3%. 

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