MARKET NEWS 31/10/2019

Good morning

A significant move for the Rand was forecast and a significant move is what we got, but unfortunately those with hopes of decisive action to drive the Rand stronger were left to pick through the debris in search of elusive green shoots. 

These are the mid rates as at 7:45 today:

USD = R14.99

AUD = R10.37

GBP = R19.35

NZD = R9.62

EUR = R16.72

Brent Crude = $60.88 per barrel

Market News

• There’s no other way to describe yesterday than a disaster for the Rand, this as we plunged by 44c, or 3%, in a matter of minutes. Just before Tito Mboweni’s mini-budget speech we were at R14.61 to the Dollar but a dive to R15.05 followed soon after he began speaking. 
• Yesterday’s drop was the largest single day slide for the Rand in over a year and is a resounding rejection of his budget speech by the market. While Moody’s recently said they will not downgrade SA to junk status in the next 12 to 18 months the prospect of them lowering our outlook from “stable” to “negative” tomorrow is almost fully priced in, with a downgrade to junk at some future point seemingly certain. The Rand is likely to remain on the back foot for the next few days at least while the market digests the startling figures released yesterday. 
• We knew things were bad as forecasts were calling for a debt to GDP ratio increasing from 56.7% to 60% by 2022/23, GDP growth dropping to 0.6% this year and some sort of announcement on Eskom’s debt which would further strain the fiscus. Unfortunately Mboweni surprised to the downside on all fronts as he projected debt to GDP rising to 71.3% by 2022/23, that GDP growth this year will fall to 0.5% and most notably, he failed to give any further indication on how Eskom’s debt will be handled. There was an acknowledgement that government spends more than it earns, which is not news, but no firm commitment on how to fix this other than banning business class flights for officials, freezing salaries at current levels and a capping the price of government cars at R700K!!!
• The response to yesterday’s speech has been scathing, and the following is from News24:  The Minister included a very realistic statement of all the problems. However, he revealed no action on the deficit and spending cuts that were too small, as well as nothing new on economic policy and nothing yet on Eskom’s debt, says Old Mutual Investment Group chief economist Johann Els. "Therefore, the Medium-Term Budget Policy Statement again reveals a statement of intent, but no action and I expect Moody’s to run out of patience this Friday leading to a ‘negative’ outlook."
• This excerpt is from Reuters:  The Rand suffered its steepest fall in more than a year on Wednesday after Finance Minister Tito Mboweni forecast wider budget deficits and a sharp increase in debt during his medium-term budget policy statement. “From a ratings agency point of view the debt is unsustainable,” said Cristian Maggio, head of emerging markets strategy at TD Securities. “There is no way that South Africa can escape a downgrade. It may not happen immediately, it may take some time because ratings agencies follow certain procedures, but it will happen,” he said.
• That the Rand’s slide wasn’t even worse is thanks to Dollar weakness in the evening session. The FED cut US interest rates as expected and changed the language in their statement, but while Dollar bulls were hoping for a conclusive end to rate cuts the FED left the door slightly ajar for further action. The Dollar lost ground as a result which would have capped the Rand’s losses.
• Local market data today sees our September producer inflation print as well as its trade balance, but these releases will not register as the budget content gets dissected.  
• Possible USD mid rate trading ranges in the Rand today are R14.80 and R15.10.