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Rand still on the ropes as downgrades fears weigh

Stocks set to open flat, with the Top-40 index unchanged.

South Africa’s rand was weaker early on Friday, still bruised by the heavy losses triggered by a grim economic outlook outlined in the medium term budget earlier in the week.

At 0630 GMT the rand was 0.12% weaker at 14.25 per dollar, brining the week’s losses close to 4.5% as fears of imminent credit downgrades kept buyers on the sidelines, with short buyers waiting for the unit to fall further.

Finance minister Malusi Gigaba on Wednesday hiked Treasury’s fiscal deficit forecast for this year to 4.3% of gross domestic product from 3.1% in April while also slashing the growth estimate to 0.7% from 1.3%.

The dire budget forecasts have raised the stakes ahead of S&P Global’s and Moody’s November 24 credit rating reviews of the junk grade-threatened country, with markets duly unnerved.

Read: Budget woes raise stakes for November 24 rating reviews

Bonds were also on the ropes with yields at their highest in 18 months. The yield on the benchmark 2026 paper was at 9.27% in early trade, up by 1.5 basis points.

Read: Bond market hates Gigaba’s plan for SA’s finances

Stocks were set to open flat at 0700 GMT, with the JSE securities exchange’s Top-40 futures index unchanged.

With no major local data due, traders anticipated focus shifting to offshore events following the European Central Bank’s decision to extended its bond purchases, dampening chances it would hike interest rates in 2018.

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SA 10 year money is nearly 700 bps over US 10 year money! We cannot compete with anything at this level of debt cost. Oil going up with a weak rand means inflation and more food price hikes!

With a downgrade very possible and forced bond selling by the global trackers we could have a perfect storm here. If this happens see the ZAR way over 16, possible return of all asset swaps/25% offshore holdings in unit trusts and a final carrot to the rich white non ANC voters..the re-introduction of an old friend…the FINRAND!!

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