Zumas Power Play, South Africa Cut to Junk
Hello Traders,
News of South Africa being cut to junk has brought my attention back to the South African Rand. The reason for the cut stems from South Africa President Zuma's decision to remove the finance minister Pravin Gordhan in a move to fill his cabinet with loyalists. Historically, a shake up in the countries finance ministry has undermined economic confidence in South Africa leading to further devaluation of the Rand.
I would expect the South African 10-Year Bond to increase in value (drop in market yield) as the S.A.R.B has reached the end of their tightening cycle leaving the repo rate at 7%. Bearish for the S.A. Rand.
Average unemployment rate has increased steadily over the past 5 years; Currently at 26.5%, along with a steady YoY decline in gross domestic product since 2012. Bearish for the Rand.
With inflation risk and a sudden -.3% annualized contraction in GDP growth, outlook remains negative for South Africa.
Due to the political instability in South Africa along with the weakening economic growth. I expect to see further weakness in the Rand.
News of South Africa being cut to junk has brought my attention back to the South African Rand. The reason for the cut stems from South Africa President Zuma's decision to remove the finance minister Pravin Gordhan in a move to fill his cabinet with loyalists. Historically, a shake up in the countries finance ministry has undermined economic confidence in South Africa leading to further devaluation of the Rand.
I would expect the South African 10-Year Bond to increase in value (drop in market yield) as the S.A.R.B has reached the end of their tightening cycle leaving the repo rate at 7%. Bearish for the S.A. Rand.
Average unemployment rate has increased steadily over the past 5 years; Currently at 26.5%, along with a steady YoY decline in gross domestic product since 2012. Bearish for the Rand.
With inflation risk and a sudden -.3% annualized contraction in GDP growth, outlook remains negative for South Africa.
Due to the political instability in South Africa along with the weakening economic growth. I expect to see further weakness in the Rand.