SOEs add to South Africa’s woes

This Rand report is brought to you by Sable International

This has come off the back of the crisis at Eskom and the reimplementation of load shedding countrywide. On top of the diminishing state of Eskom, SAA is in dire straits. All of this does not bode well for the South African government, which has written guarantees to secure loans for multiple state-owned enterprises.

In the global economy, Donald Trump declared a state of emergency to unlock funding for his border wall – this has been criticised by both Republicans and Democrats. The talks between the US and China have been progressing and it seems that some form of deal might be available within the next month or so.

In the UK there has been a revolt from the Labour party with seven MP’s leaving the party in protest against the leadership of Jeremy Corbyn. With just 38 days left until the UK leaves the EU, pressure is mounting against Theresa May to secure a deal before the cut-off time. This is a major risk factor for the global economy and should not be taken lightly as volatility will definitely be increasing as the 29 March deadline approaches.

In South Africa, we have the Budget Speech on Wednesday. For investors, the focus will be on how the South African government will tackle the problems associated with Eskom and SAA. With debt mounting and the generation capacity of Eskom under pressure, the government is expected to announce splitting Eskom into three separate entities: generation, transmission and distribution. How things will pan out remains to be seen, and this will be something to watch very closely.

Overall, the Rand is expected to remain at this weak level until the Budget Speech. Depending on the level of reforms implemented by Finance Minister Tito Mboweni, it could go either way. Traders should remain vigilant and keep an eye on the currency during these high-risk periods.

• Tuesday

UK Average hourly earnings – Average Hourly Earnings is expected to increase, this is a positive to the GBP, so it could in effect weaken the ZAR.

• Wednesday

SA Budget Speech – The Budget Speech will outline the trajectory of the SA economy and how the Government will deal with issues arising from SOEs and move the economy forward.

SA Inflation Data – Inflation is expected increase. If this does happen, that will be ZAR negative.

• Thursday

SA Trade Balance Data – If the Trade Balance does widen, that would be ZAR negative. With the currency weakening at present, it does not bode well for this data point.

• Friday

EU CPI data and ECB Pres. Draghi’s speech – CPI is expected to increase. This is what the EU wants and would thus be EUR positive. Any deviation from this would be a cause for volatility.