We may only have three days left in the week, but they sure are looking action packed. Monday got us off to a rather bumpy start so hopefully things improve before Friday’s public holiday brings a welcome three-day break.
Risk assets had a Monday they would prefer to forget yesterday with the Rand escaping relatively unscathed all things considered. We opened at R14.71 to the Dollar thanks to a shocker of an end to last week, but while we slipped to R14.86 before improving to R14.77 things could have been so much worse when looking at the carnage across equity markets.
Global investors are struggling to climb a wall of worry with a litany of risk events spooking the market. The most prominent of these is the precarious Evergrande scenario out of China but this has been joined by tomorrow’s FED announcement, an impasse in raising the US government debt ceiling before their 30 September deadline, chatter of higher US taxes to fund Biden’s stimulus programs and rising Delta numbers. The end result was a violent selloff across equity markets yesterday with most indices down around 2%, and while this translated into Rand weakness our fall from R14.71 to R14.86 before recovering to R14.77 underperformed the wider market selloff.
Thursday’s deadline for Chinese property developer Evergrande is almost upon us and we can only hope that a plan has been hatched behind closed doors to pay their $83m interest payment, with another $45m needed as soon as next week. “To big to fail” is a term that is being thrown about with rumours of their central bank having sent a team to Evergrande to discuss debt restructuring, but as yet we have had no updates while the clock keeps ticking. The next couple of days seem binary; we either get a restructuring solution and the Rand strengthens or Evergrande misses their interest payment, and the Rand weakens.
The following is from CNBC: The offshore Yuan wallowed near an almost one-month low on Tuesday while the safe-haven Dollar stood tall as investors sought shelter from a potential China Evergrande default. “It feels like the market was waiting on something from the Chinese authorities over the weekend to calm the markets and ringfence the contagion worries from a looming Evergrande default, and that didn’t come,” Chris Weston, head of research at brokerage Pepperstone wrote in a client note. “Traders sense a credit event is coming.”
The Evergrande story will dominate financial news headlines until FED Chair, Jerome Powell takes to the podium on Wednesday night. With the FED’s repeated assurance that they will start to taper their asset purchasing program this year, and with the clock also ticking on this front, the market will pay close attention to Powell’s language as he tries to maintain their narrative while in true Powell fashion not giving any specifics away. The Rand will be hoping he pulls the trick off as any direct reference to policy tightening should see the Dollar strengthen.
Local market data today sees our leading business cycle indicator for July with an understandable drop to -6% forecast thanks to the unrest. Thursday sees our own monetary policy announcement which is our local main event for the week.
Possible USD mid-rate trading ranges in the Rand today are R14.60 and R14.90.
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