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FSP No 47661

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 18.70; EUR 20.35; GBP 23.32

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  • SARB cuts repo rate: by 100bps to 4.25% in revising the 2020 growth forecast to a contraction of 6.1% versus the January projection of 1.2% growth. More cuts to come
  • Treasury is “open-minded” in seeking external assistance: from World Bank / Development Bank – “We are talking to them about it. We are looking for programmes not accompanied by any structural reform programmes,” – a nod to the internal ANC politics, heavily weighted against “external” reforms which would impact the civil service & labour
  • SAA / SA Express: “More clarity on the proposed closure of SAA & SAX will be provided following the cabinet briefing tomorrow” – referring to today. Government has turned down a request for R10bn in additional assistance, made by SAA in early April. As expected, the situation is forcing tough decisions in the SOE space that likely should have been made some time ago
  • Market reaction: USDZAR sold off to 18.70 from 18.00 in reaction
  • Global: (& particularly US) markets continue their relentless rally, now having recovered 50% of the initial drop. On the face of it it’s almost inconceivable given the jobless numbers, forthcoming Q1 earnings releases & statements, until we understand the details around the unprecedented actions the Fed has been taking in the open markets (https://www.newyorkfed.org/newsevents/speeches/2020/log200414) . Lets see what this morning’s Retail Sales numbers bring……
  • South Africa & ZAR remain fragile: volatility and weakness will stay in the very near term. ZAR is the worst performer vs USD year-to-date as the below chart indicates, many Emerging Market compatriots keeping us in close company however. ZAR continues to be significantly undervalued, particularly vs USD. We continue to wait for the quantitative catalyst to bring calm to the markets – its only at this point we expect the valuation gap to close

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