A Japanese diplomat finds out that Donald Trump and Kim Jong Un both liked fishing, and so he organises for them to go fishing in a hired row boat on the beautiful Lake Shinji. Things are not going well and tension is rising as they manage to catch nothing. After a few hours, just before they’re about to head back to shore, the fish start biting. After a manic 45 minutes the boat is about to sink under the weight of all the fish they catch…

DT – “Hey Kim, this is a great spot. We should mark it and come back tomorrow to catch some more!” 

Kim – “No problem Don, I’ll take care of it!”. They head back to shore, remove all the fish, and hand the boat back.

DT – “Kim, did you mark the spot?”Kim - “For sure buddy, I marked a cross on the side of the boat”

DT – “You idiot, how do you know we’re going to get the same boat tomorrow?” 

And that’s how world war three started! 

Number one re-accused

Friday’s announcement by the Supreme Court of Appeals (among other factors) that President Zuma is once again accused has emboldened the ZAR bulls. It’s almost as if the punters expect him to resign, and that he will be replaced with a more market friendly president. The fact is that this saga started almost two decades ago, so we should not expect the situation to change anytime soon. In fact, it’s now imperative (for Jacob Zuma) that a Zuma faction appointee wins the ANC elective conference in a few weeks.

Sooner than that, Finance Minister Gigaba will present the medium-term budget framework. Unless he’s learned some astounding magic tricks recently, it’s not looking pretty.

SOEs remain in trouble

SAA needs more money. The SABC requires more funding. Eskom wants a 20% tariff increase. PetroSA is a disaster, and so on.

Global versus local tension

The developed world’s Central Bankers are becoming slightly more hawkish regarding global inflation, meaning that developed market rates will go up at exactly the same time as South Africa requires additional funding. That’s not a great mix. And, as per my weak joke, the global geopolitical backdrop is not great. Trump and Kim continue to play fast and loose with their respective nuclear arsenals. Brexit talks are stalling. Extremism in Africa is costing hundreds of lives every day. None of it’s pretty.

It really does feel as if something as frivolous as a fishing argument could start WW3. The trading world is ignoring all the warning signs and are, once again, pouring into high yielding assets like the ZAR and South African bonds.

I’m amazed that the VIX index (global volatility proxy) remains below 10%. While it does, it will continue to provide ammunition for the ‘risk on’ brigade. I’m not sure how long it can last.

If I was a betting man

I am prepared to make two bets:

  • Cyril Ramaphosa will not become the next ANC President. There’s simply too much for the Zuma faction to lose.
  • Minister Gigaba will tap the PIC in some way, it’s a matter of time. There’s simply no money left in the National Treasury. 

Both my predictions are not ZAR friendly in the longer term, and I hope I’m wrong. But in the shorter term, it’s all down to the yield seekers. They are active and there’s a chance they may add to their positions. But again, in the longer term, it will all end in tears (in my opinion). In the meantime, can someone please make sure that the Donald and the Kim don’t remain unsupervised.

The reshuffle

President Zuma has reshuffled his cabinet (for the 11th time) – with two notable action items: Minister Nzimande has been axed, and Minister Mahlobo has been moved to the energy department, with Mahlobo wasting absolutely no time in talking up the challenged Nuclear deal with Russia.Rumours are beginning to circulate that Deputy President Ramaphosa is next in line to be culled – perhaps even before the ANC elective conference in December.

Latest developments

  • The PIC has confirmed that they are considering a stake in SAA – perhaps a reason that the chairperson of SAA was removed last night.
  • North Korea continues to threaten – and the Donald has become a little quiet (for now)
  • As a result, the Rand is back above 13.5000 – sending the yield seekers running for the hills.
  • I have to say that every announcement or action from the South African Government reinforces my long term bearish view for the ZAR.
  • In the short term it’s been a relatively quick move, and the Rand may be due for a little breather – however market sentiment remains poor, and unless we receive some dovish International Central Bank commentary the Rand should continue to underperform.
  • Technically we see 13.4500-13.6500 as the range for now.
  • Oh, and Bitcoin has also been on a bit of a roller coaster – rolling around between 5100 and 5800 USD
  • In case you are not aware – Liverpool FC scored a magnificent 7 goals in their recent Champions League fixture - #justsaying 

Good luck – roll on the weekend.

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