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Local Market Commentary
- There is palatable anger across the Southern African region as a result of many countries response to the Omicron variant of the COVID-19 virus being identified in the region. The UK started the ball rolling by banning flights and placing South Africa, Namibia, Lesotho, Botswana, Eswatini and Zimbabwe on the red list from Friday last week. This has since been expanded to include Mozambique, Zambia and Angola. The fact of the matter is that even though the variant was identified in South Africa, there is no concrete proof that it originated in the region, in fact the variant is now being discovered in countries across the globe.
- Analysts, economists and even officials at the World Health Organisation were taken off-guard by the heavy response by the UK and countries that followed, the action of banning travel from the region will undoubtedly hit the tourism sector hard and make it even more fragile than it is currently. Equally, there is another issue that has been raised, and this is that countries may choose not to disclose new variants found in the future given the treatment the region has received.
- Following on from the news above, Zambia has taken further steps in its fight against the COVID-19 virus. The government will now compel civil servants and anyone entering government buildings to be vaccinated against the virus. In addition, The Health Minister Sylvia Masebo started that travellers arriving to Zambia from what they deem high risk countries will have to quarantine for 10 days at their own cost.
- Moving over to developments in the base metals markets, Copper received a beating on Friday as fears surrounding the destruction of economic dynamism due to the COVID-19 variant permeated the markets on Friday. It did not help that liquidity was sub-par given that many in the US had taken an extended break for the Thanksgiving holidays. 3m LME copper finished some 3.55% lower on the session at $9460.00/tonne while nickel closed 3.8% lower at $19897.00/tonne.
- This morning things are somewhat better for base metals as the jitters around the new variant have settled. 3m LME copper is currently 1.28% higher on the session at $9575.50/tonne and the recovery should extend through the EU session later today.
- Internationally, the Thanksgiving long weekend is behind us, and with it, Black Friday. For the first time on record, online shopping dipped compared to the previous year, with many opting to physically head back to the shops. That does not mean that the trend in online shopping has changed or that this has been a bad Black Friday sales experience. On the contrary, although the hordes of people were not physically present, this is still expected to be a record spending festive season which will offer the U.S. economy a nice boost to end the year.
- Moving over to the FX markets we see the dollar mildly bid this morning after the losses seen on Friday. The USD index is currently holding just north of the 96.20 mark as we head into the EU which does suggest that the trend higher for the ZMW will remain in tact for now. Many analysts and economists are pencilling in the potential for a break above the 18.00 handle before the close of 2021.
Rand and International FX Commentary
- Since SA scientists sequenced a new Covid-19 variant and announced it to the world, it has been a wild few days for the ZAR, resulting in many investors being caught off-guard. What made it difficult for anyone exposed to ZAR is that Britain’s travel ban imposed on SA took place at midnight after the announcement, resulting in the ZAR losing between 30-40 cents overnight. So as not to be accused of being too slow, Europe, the US and other countries followed suit, and the ZAR plunged to levels of 16.3650, before staging this morning’s recovery.
- It appears the decision to impose travel bans was regrettable in that it was a knee-jerk reaction that was unjustified. The result has been mass cancellations across the tourism sector domestically, and it is unclear whether the bans will be lifted soon enough to undo some of the damage. However, with the likes of the UK already allowing BA to fly to SA as of Wed, albeit on a vastly reduced basis, there are early signs that this rash decision to impose a travel ban on SA was premature and devoid of any scientific justification.
- At the time of writing, the ZAR had already unwound 20 cents of the recent depreciation. Once the dust settles, this may prove to be the end of the depreciative move. However, the damage to SA has been done and comes as an unwelcome blow to Q4 GDP just when SA was showing signs of staging a recovery. It has also ushered in a stronger push to get more of the population vaccinated, and it is looking increasingly likely that vaccine mandates will now be considered in some form.
- Although that would be in keeping with the norms and standards internationally, SA had resisted the temptation to become autocratic in its vaccination policy. That is looking unsustainable as SA looks to show the rest of the world that it has done all it can to fight the pandemic. One questions whether the response from offshore countries might’ve been different if SA was a highly vaccinated country?
- At the start of the week, the dust must settle on a wild and unpredictable ride in the USD-ZAR. By no means is it over. There are a lot of decisions that must be made both internationally and domestically, and the combination of how international markets respond to a potential ramping up of restrictions abroad and a possible dialling down of the travel ban to SA will likely determine how the ZAR performs. However, given how much has been priced in, the risk might now favour the ZAR recovering this week.