James Mckeown, director of Domisa Treasury shares weekly market updates, along with his current view on the South African market.
Levels at the time of writing: USD 18.03; EUR 19.61; GBP 22.40
Since our last update USDZAR has round-tripped from 18.26 to 19.35 and back to its current level of 18.03. During the same period the S&P500 has added 11%, yes 11% in just 5 business days! As we’ve expected, increasing global risk appetite immediately closes the undervaluation gap on ZAR.
That’s comforting but we don’t believe in this rally in global asset prices. Bear-market short squeeze, FOMO, whatever else – the market is reading too much into very loose (improving) numbers around the virus and translating it into expectations as to when the global economy gets back to work.
In terms of the catalyst we’re waiting for this is not it in our opinion. Volatility and weakness will continue for global, SA assets and ZAR as the reality of jobs numbers and forthcoming earning reports bites.
It’s certainly true that equity markets will ultimately provide an excellent hedge against the inevitable inflation as a result of central bank free money but that position is premature right now in our opinion. We expect weakness & extreme volatility in the very near term – this bear-market bounce is overextended and heavy selling will likely follow.
Be on the look-out for today’s initial jobless claims out of the US. The range of expectations is between 4 and 9 million – a clear indication of how much remains unknown.
Please do not hesitate to contact us, should you have any queries or transactions.