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Rand hammered by fragile sentiment as oil adds to virus threat

Downbeat Moody’s, virus fears and drop in commodity prices sink the local currency.
Image: Bloomberg

The rand plunged by almost 8% against the dollar Monday, touching its weakest level on a closing basis since January 1980, as investors fled riskier assets, with tumbling oil prices adding to nervousness spurred by the spreading coronavirus.

Read: Oil drops 31% in worst loss since Gulf War as price fight erupts

While global sentiment was the largest factor in the rand’s performance — with the currency seen as a proxy for its emerging-market peers — local factors including renewed rolling power cuts by Eskom and a downbeat assessment by Moody’s Investors Service of South African growth ahead of its ratings review later this month contributed to the selling pressure.

Eskom warned that its maintenance plan must be supported by the government or South Africa can expect regular blackouts from power cuts of 8 000 megawatts by mid-2021, a move that would cripple the economy. The power utility said it will implement rolling blackouts from 9 a.m. on Monday, which may continue until Thursday. Moody’s said on Friday it had trimmed its 2020 gross domestic product growth forecast for Africa’s most industrialised economy to 0.4% from 0.7%.

Read: Eskom warns of 8 000-megawatt power cuts if maintenance delayed

The rand slid for a third day, falling as much as 7.7%. It pared the losses to be 3.2% weaker at R16.18 per dollar as of 7:55 a.m. in Johannesburg, the lowest since February 2016 on a closing basis.

The yield on rand-denominated government bonds due December 2026 jumped 19 basis points to 8.19%, while generic 10-year notes were little changed at 9.04%. Non-residents were net sellers of R2.7 billion of South African bonds on Friday, according to figures from exchange operator JSE Ltd.

The JSE All-share index plummeted by 6.25% to 48 882  points as of  10:45 a.m.

JSE All Share intraday movement

As Wayne McCurrie, senior portfolio manager at FNB Wealth and Investment says: “The markets collapse every eight to ten years. There are different reasons as to why it collapses, and when it does, you think the world is coming down before your eyes, and that things will never be the same again but the worst thing that you can do in an environment like this is to panic”.

However, McCurrie does point out that it is unusual for the stock markets to fall by more than 5% in one day. 

“But this is not due to South Africa’s lying economic problem. The previous stock markets were overvalued so the markets are not currently collapsing because of the widespread of the coronavirus,”

Another market watcher Chris Gilmour says “Everything is just falling”. 

Gilmour says that the last time the markets dropped like this, including seeing the oil shares falling, was during the 1991 Gulf War. 

“What happens when you get this sort of environment is that the emerging markets get hammered. It is what is called a slight equity… Everyone is in panic and they are dashing for cover,” Gilmour says. 

In Germany and the US the bond yields have dropped drastically,” this is crazy stuff” Gilmour says. 

“Unfortunately emerging markets such as South Africa will have to pay the biggest price for all of this, because most people feel at this time that they have to leave them and go and be part of what is happening in the US treasury bonds; no matter how low they go,” Gilmour says. 

The All Share index dropping drastically like this morning will most probably not continue for the rest of the day, Gilmour says. 

“I have seen his happen before. It dropping too fast, and eventually it will get a rebound of some sort,” Gilmour says. 

© 2020 Bloomberg L.P. Additional reporting by Melitta Ngalonkulu at Moneyweb. 

COMMENTS   9

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Our currency has been on thin ice for years, nothing like a black swan event to lift the veil and see … there is literally nothing behind it

This is a perfect storm of factors crushing the currency and asset values in general throughout SA and the developing world.

Cross fingers this is now the bottom of the barrel and we can begin our journey in the 4th IR.

Gold anyone?

Magnus Heystack always said get all yr money offshore : He was not wrong !

A moment of silence for the banks, hedge funds and private investors who are long futures contracts and CFDs on Brent Crude, Sasol and the rand. South Africa is Margin Call Mecca this morning. This is how a one-day move on Sasol eats your entire house and car before the sun sets.

The good thing about load shedding is that I get a 2hr break from watching this shi… show.

Dear Allan Gray

Sasol your favorite, sasol ( small caps intended) are deep in the value as per your analysts !!!!
Please tell me your performance fee’s om my funds at your stable are worthy of your opaque crystal ball !

Buy Sasol now at the bargain price of the decade!

Got a few you trying to flog?

I will certainly spare a thought for the poor b@stards long sasol and oil. However, the Saudi rumour in mid east circles about the discount being offered this weekend started on Wednesday night last week. Looking at some positions opened up (massive shorts) between Thursday a.m. and Friday p.m. and then having seen some of the heavy weight traders popping bottles of champagne at lunch in Londons financial district and some hastily convened parties in Dubai late morning as massive short positions were closed out, makes one think it was not a surprise to all.

As usual the inner incestuous circles that exist around big news events never ceases to amaze. Allegedly 7 individual accounts collectively across 3 institutions netted over $500 million this morning on the oil price blood bath – am sure this is just the tip of the ice berg, as also apparently no surprise to well positioned and networked traders who were/ are conspicuous in their short positions spread across varieties of instruments. As much as Saudi will bleed in their sales you can be sure that this was well planned and ‘potential massive lost revenues’ were largely mitigated before this announcement, well hedged and more than likely profit from same.

I would think that banks over extended on loans into the USA shale market must have had heart failure when they heard the announcement on Saturday – has it not been a long stated goal of the OPEC set up to crush the US shale producers. Take of it what you will, just passing along idle chatter and rumour … but it does not take a rocket scientist to imagine the number of individuals that would be aware well ahead of time in any government let alone one as corrupt as the Saudi one and via the old rule and power of 6 i think it is called, how may people were able to place their bets well ahead of time for RED on Monday.

On a different note the ZAR has recovered amazingly well back under 16.00 having nearly taken out 17.00 at one stage very early on.

End of comments.

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