David Gracey

David Gracey

David Gracey | Head of Foreign Exchange and Fixed Income Trading

Cross roads awaiting

  • I have been getting a few questions from loyal readers (all 3 of them)  as to the lack of “currency comment” for the last couple of weeks.
  • It’s not for a lack of news – rather, I’m a bit like Shakespeare without inspiration. That is if Shakespeare bothered about currency movements.
  • And if I am honest there has been quite a bit going on….so let me try to catch up.
  • Firstly, let’s begin with the shortest coup d'état attempt since the AWB tried to take over the old Bophuthatswana in the early 1990’s.
  • One of Russia’s many private armies (Wagner) attempted, or threatened to attempt, to overthrow Russia’s military leaders, for about as much time as it takes to make a decent roast chicken.
  • It all came to naught. But what it did show is that things in Russia are pretty fluid and uncertain.
  • This has implications for us here in South Africa as we still don’t know if Putin will, or will not, or maybe will attend via ZOOM, the BRICS summit set to take place over here in August.
  •  I have to believe that even if President Ramaphosa made a plan to get Putin here without having to arrest him, that he would be reluctant to leave home with the threat of a potential  ousting hanging over his head.
  • On this front our Government has painted itself into a small little corner with very little room to maneuver. One has to wonder why we are so tight with the Vodka consumers?
  • Yes we are part of BRICS (soon to be renamed BRICSANDMORTARWITHALITTLESAND with all of the new applicants wanting to join), but we are also signatories to the ICC , which means we are obligated to take action should Putin step onto our shores.
  • In other news, it seems as if Eskom has suddenly discovered untapped sources of power, because load shedding has dramatically improved.
  • Or perhaps it’s simply a matter of so many consumers having moved off the grid  that  the utility finally has some spare capacity  to keep the lights on for longer than it takes to attempt a coup  in Russia.
  • Whatever the reason, it has been a welcome reprieve for business owners who can now complete the toasting of the bread to put the chicken in with all this spare generation capacity.
  • If this trend is maintained (I am skeptical) it will alleviate some of the GDP pressure that the country has been subjected to, perhaps even allowing for the ZAR to make up some lost ground.
  • Speaking of which , the currency has been behaving erratically for the last month or so.
  • It traded as weak as 19.90, and as strong as 18.13 to the USD , all in a very short space of time, oscillating between worst and best performing EM currency almost daily.
  • Actually that’s not entirely true, the worst performer tag belongs to the Turkish Lira – Erdoganomics has finally caught up with that currency .
  • Post the Turkish election where Erdogan has won yet another term, they have realized that they cannot go on spending reserves trying to defend a currency battered by 80% inflation.
  • So they have let the currency weaken whilst they attempt to normalize interest rates over the next few months. Turkey is a prime example of the new (SFW)  adage – “you mess around, you find out”, something that South Africa keeps having to learn.
  • It’s a good lesson for financial authorities. There are a few rules in economics that hold true universally.
  • Rules  that  the “nationalize the SARB” brigade  should heed.
  • More recently we have the riots taking place in France that will shape world politics  for years to come.
  •  At face value it seems as if the large immigrant population in France have decided to flex their considerable muscle. The country has descended into chaos with large crowds roaming the streets in scenes reminiscent of our own July 2021 situation.
  • What this probably means is that global politics will take a swing to the extreme right over the next few years, forcing a standoff between the woke left and the crazy right.
  • Which may open the door for a second Trump administration, if he manages to evade a lengthy prison term.
  • It seems to me that the world is at a cross roads politically and economically.
  • Wokeness Vs. Nationalism, Dollar centralization vs. De dollarization. East vs. West. The global north vs. the global south.
  • All of which has implications for South Africa, as it battles to find its way in a complicated new world driven by technological and environmental changes.
  • Its little wonder then that the  Rand remains extremely volatile.
  • There is little doubt that our currency is undervalued on many measurements. But can it recover ground when our own domestic situation is so uncertain.
  • As we head into next year’s election we do expect the political temperature to rise significantly. The populists will promise all sorts of things to stay in, or gain power.
  • The opposition, a few who have now formed an official alliance of sorts, will try their best to disrupt the current set up. The voter however may simply  be just too tired to care.
  • All this whilst developed nations are still trying to battle the threat of inflation whilst ensuring that they don’t do damage to their economies built on mountains of debt.
  • It’s going to be a very interesting few years.
  • I bet those 3 loyal readers are sorry now that they pressed me to write something!!!