Week of 20 May 2024

Last Week Recap

The market mainly focused on U.S. CPI, which captured the most attention throughout the week. Despite Tuesday's PPI figures indicating an uptick, the CPI figures stayed within the expected range.

The German ZEW Economic Sentiment index rose, creating some expectations that economic activity is improving. Across the ocean, the Chinese economy kept lending rates steady despite new tariffs from Biden on electronic vehicles and solar panel imports. We believe this tit-for-tat will continue ahead of the U.S. elections.

South Africa Context

The rand has mainly been influenced by the dollar's weakness; consequently, the USDZAR carry trade has been fruitful based on interest rate expectations in both economies. Last week, we observed a major slump in mining production and an uptick in quarterly unemployment figures, signalling that the economy still shows weakness over medium and long-term projections.

President Ramaphosa signed the NHI bill last week, which will provide universal health care to all. While it may be the strategic move the ANC needed in the election chess match, the bill's instability and legal battles will challenge the ANC in the coming years. Overall, I anticipate the bill seeing some progress after a 10-year horizon, based on potential pivots by the ruling party in logistics, electricity supply, and relaxation around exchange controls. Conversely, the current tax collection would not support the bill's financing need due to a low tax base.

USDZAR Technical Analysis

Despite the South African local election being only nine days away, speculation of U.S. interest rate cuts over the last two months has supported the rand momentum.

We're approaching a crucial level at the Fibonacci retracement, but a reversal may be unlikely given a widening USDZAR carry trade and a disinflationary U.S. environment, which will support the ZAR's momentum until the end of Q2. Keep in mind that April and May data will show a level of skewness due to load-shedding suspension ahead of the elections.

A momentum price action toward 17.95 and 17.78 is possible if the stars align in the macro environment. However, I'm cautious ahead of the recent shipment of weapons from the U.S. to Israel last week. If Israel aggressively pursues the Rafah Region, this will add further tension in the Middle East. Additionally, this morning, Iran’s President died in a helicopter crash in a mountainous region of Iran. It’s important to note that Iran’s supreme leader (Ali Khamenei) is more influential than the late president (Ebrahim Raisi), and tides will start to change in the Middle East conflict.

Hedge Analysis Scenario

The data below emphasises hedge scenarios based on a USD50,000 invoice on a 60/40 split vs. an outright hedge.

Blockchain

BTC and ETH have seen a run-up in the last few days. A key price target will be around $68k on BTC, which will flush out around $1.02B in short cumulative leverage positions on Binance, OKX, and Bybit.

Technical Analysis

BTC confirms an ascending triangle formation from its low in May. We may see the price continue on this trajectory, approaching April resistance above $70k. Leverage liquidation could spur a knee-jerk reaction to the downside before pushing higher as we enter June.

Insights by: Shiven Moodley (COO & Macro Strategist)