Photo: Adobe Stock

SA rand, markets rebound after Monday bloodbath, but volatility set to continue

Forecasting the performance of our market and the rand is crystal ball stuff right now.


Photo: Adobe Stock

Analysts wishing to forecast the way South Africa’s financial markets and the battered rand will react today, Wednesday 11 March, would do well to haul out their crystal ball or lick their index finger and turn it to the morning wind. 

Such is the global volatility right now – a combination of the near-hysterical reaction to the ongoing spread of the coronavirus and the erupting oil supply war between mainly Saudi Arabia and Russia – that these tactics seem as good a method as any to predict how the markets will play out today.

The overnight performance of world markets proved a mixed bag. In New York, the three main US indexes closed nearly 5% higher. London’s FTSA 100 ended Tuesday almost flat after losing 7.7% on Monday. Asian markets were variable early on Wednesday morning, with the Shanghai Composite up 0.32%. But Japan’s Nikkei Index lost 1.52%.

JSE and rand slightly better at close of business on Tuesday

After Monday’s financial bloodbath on the local markets, which reflected the turmoil happening around the world and to which the small South African economy is a largely hapless and helpless hostage, on Tuesday 10 March the JSE rose slightly and the rand ended the day at an improved R15.94 to the US dollar, after being at R16.19 on Monday morning. 

Business Day quoted Standard Bank currency dealer Warrick Butler as saying that although the rand had strengthened on Tuesday due to US President Donald Trump’s comments about a payroll tax holiday and relief for the travel and hospitality sectors in the US to combat the coronavirus’s impact, “this is not to say the panic is over”. 

Business Day added that the rand’s one-week implied volatility was the second highest among emerging-market currencies tracked by Bloomberg at 26.65%, just behind the Russian rouble at 31.11%.

Oil price rebound helps the markets, but prices could fall again at any time 

Another reason for the market rebound on Tuesday was a slight climb in the oil price after the market panicked when both Russia and Saudi Arabia said they would increase their oil production and flood the market, which would drive oil prices down. Iraq and Nigeria then said they would also ramp up their oil production.

The price of Brent crude rose 3% in London on Tuesday, partly on an expectation that the US would protect its own oil-producing industry, including those that produce oil from shale.

But the oil price war is still likely far from over, which could cause markets to fall again in the coming days and weeks. 

Bloomberg quotes Howie Lee, an economist at Oversea-Chinese Banking Corp, as saying:

“The market rally based on Trump’s economic stimulus alone is unlikely to be sustainable given the amount of crude that will soon be hitting the market. Any meaningful rebound will either come from coronavirus fears fading away, or Saudi Arabia and Russia returning to the negotiating table.”