The data calendar was thin last week which allowed the South African markets to digest the presidential inauguration. The rand has received strong bids in the past two weeks, pulling the USD/ZAR pair to an 11-month low and below the 18.00 handle while SA capital and equity markets have attracted renewed and optimistic inflows following the new GNU. Thishas allowed the 10-year yields on SA bonds to fall back below the 10% mark while the JSE climbed to levels last seen in January last year. During all the hype around the presidential inauguration, Stats SA released the latest SA CPI results for the month of May which printed a y-o-y CPI print of 5.2%, still well above the SARB’s midpoint at 4.5%.
The GNU is however already showing signs of fragility following reports that the ANC has only offered the DA a mere three Cabinet positions. The ANC will attempt to include as many small parties in the GNU that support the ANC in order to boost support against the DA. Only time will tell how the cabinet positions are negotiated but rest assured it will be a bumpy ride at SA transitions to this fresh and uncharted political structure.
Internationally it was a quiet week however the rift between central bank policies are starting to widen. Last week the Bank of England opted to keep their interest rates unchanged at 5.25% while the Swiss National Bank followed the path of the ECB with a 25 bps rate cut.
Focus for the week ahead will be on the release of the Fed’s monetary policy report as well as the latest US GDP figures for the 1Q2024 and the US PCE rate which currently sits at 2.7%.
The first chart for the week is the second best performing emerging market currency against the dollar, our rand. The resistance levels on the 50- and 200-day MA’s held their ground which has allowed the rand to pull the pair below the 18.00 support level. The pair is however showing signs of losing downside momentum given the range bound movement between Thursday and Friday as well as the divergence of the RSI indicator. The pair will likely pull back to test the Fiboretracement levels at 18.13 and 18.30 this week. A break above 18.30 will allow the pair to re-test the 50-day MA level currently at 18.54 over the slightly longer term as the post-election optimism fizzles out.
Over to the SA capital market, where the SA 10-year yield has fallen below 10%, allowing SA bonds to erase most of the losses from the first half of 2024. Similarly to the rand, SA bonds are currently in the overbought zone according to the RSI indicator and a pullback is the next most likely move. The first two resistance levels to keep an eye on are at 9.90% and 10.06%.
The SA top 40 is currently up roughly 4% on a y-o-y basis following the recent strong performance but the index is approaching overbought levels. A re-test of the 50-day MA at R70,728 seems like the next likely move and if the support holds, the top 40 will be allowed to climb over the 2023 high at R75,245.
