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Rand drops to 11-month low as growth outlook darkens  

The rand has also come under pressure from credit rating agencies.

The rand fell to touch an 11-month low on Wednesday, rocked by deepening concerns about the outlook for domestic growth against a backdrop of uncertainty for emerging markets more broadly.

The rand dropped to R15.18 per dollar, its lowest since September 2018. By 1507 GMT it had recovered ground to trade at R15.08.

The rand dropped for a seventh straight day, suffering in the light of more poor data for Africa’s most industrialised economy, as South African business confidence fell.

Unemployment is at its highest in over a decade, data last week showed, while an earlier release showed the economy shrank in the first quarter.

In comments made shortly before the rand hit its new low, South Africa Reserve Bank Governor Lesetja Kganyago said on Wednesday that despite South Africa’s problems, it did not need aid from the IMF.

The rand has also come under pressure from credit rating agencies. Moody’s on Tuesday said struggling state power utility Eskom, regularly cited as a major risk for South Africa’s outlook, urgently needs a turnaround plan as its capital structure is unsustainable.

Moody’s, scheduled to review South Africa’s rating in November, is the last of the three big international ratings agencies to have South African debt at investment grade.

“Their concerns are worrisome as being the only house not to have us on non-investment grade could change come November,” Oliver Alwar, senior trader at Standard Bank, said in a note.

South Africa’s rating with S&P Global Ratings and Fitch has been non-investment grade since 2017.

In fixed income, the yield on the benchmark government due in 2026 dipped 5.5 basis points to 8.375%.

Emerging market currencies are down 1% this week and some analysts also pointed to comments by US President Donald Trump that the Federal Reserve must cut rates “bigger and faster” as fuelling safe haven trades.

“With Donald Trump’s efforts to put pressure on the Federal Reserve Bank coming into focus… an emerging market selloff has hit the local unit,” Bianca Botes, Treasury Partner at Peregrine Treasury Solutions, said in a note.

“This has only served to add fuel to the fire of an already fragile situation as the trade war continues unabated while global growth fears are further driving uncertainty.”

On the bourse, stocks closed stronger but relatively flat with the Johannesburg Stock Exchange’s All-Share index up 0.3% to 55,225 points, while the Top 40 index gained 0.29% to 49,253 points.

One of the biggest winners among blue chip firms was Amplats which gained 5.9% to R882.62, while AngloGold rose 4.78% to R320.01, its highest in two years. Gold Fields also increased 4.29% to R90.85.

The Johannesburg Gold index also climbed to a two-year high as it increased 4.45% to 2502.35 points.

“When there’s nervousness, gold is always the first point of call,” said Ryan Woods, a trader at Independent Securities.

“It’s a bit of a pity we’re no longer a major player in that space, so we are not really going to benefit from the mines,” he added.

 

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The GDP of any economy is inextricably linked to energy consumption; and per capita energy consumption equates to per capita income levels. Fact.

The cost of energy is critical for many reasons; too high and consumers can’t afford energy intensive products (food is energy intensive too); too low, and producers won’t deliver it.

Guess where South Africa sits on these dimensions? If you said on the wrong side of every one of these trends -well, go to the top of the class.

If you said the whole world is in or fast approaching this same bind, give yourself a couple of bonus points.

If you also said that our energy consumption will shortly devastate the environment through global heating then you’ve got the whole picture.

If you also spotted that this is not a great time for boondoggle projects like smart cities and the NIH I would say that you’d be right, and that these projects are doomed to fail. If you’re rethinking your investment strategies from blithely investing in stock markets as suggested by your financial advisors, I would say that you are really getting a handle on all of this.

And so we dream on about a future we cannot manage.
Trouble is, these dreams are just wasting precious time and resources and will just hasten the day when the whole edifice collapses.

A downgrade from Moody’s is an inevitable event. And so is a major exodus of medical professionals from these shores as the NIH kicks in and they all become government employees.

End of comments.

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