The key event last week for South Africa and the rand was the Budget Speech by Minister of Finance Tito Mboweni. The market was ready and waiting for an apocalyptic event, but the budget ended in a whimper.
The rand lost 25 cents on the back of the headlines after the embargo was lifted. However, the move was arrested as the budget did not surprise and was very much in line with expectations. This makes the mid-term budget speech key to see whether some of the cost-cutting measures imposed by the finance minister have been delivered and are starting to bear fruit in terms of cutting expenditure.
With the crisis of a bad budget averted, the expectations are that Moody's will at worse change its outlook to negative rather than downgrading South Africa at the end of March when the rating gets reviewed. After the budget announcement, the rand clawed back the initial losses and then some. The rand closed the week within touching distance of the R14-handle.
Over the weekend attention turned to international events with President Donald Trump announcing that the US-China trade talks were going well, and that he will extend the deadline for the negotiations to try reach a settlement. This has piqued the interest of investors to move back into riskier assets, and the rand was breaking below the R14-level on the improved EM sentiment.
This week there is little in the way of data that will be released, which leaves the market in limbo and trading within tight ranges. That should hold true for this week as the market takes a breather after a volatile couple of weeks.
However, event risk is still very much alive and well, and we are only one negative headline or tweet away from sentiment turning.
To catch up on today’s market commentary, have a look at the TreasuryONE blog which is updated daily.