If you’d gone to sleep on the 31st January and woken up at the end of February and just looked at data for these two points, you would have thought that you hadn’t missed anything, but you’d be wrong … By Garth Saunders

Risk was back on the table and the USD reversed its recent strength throughout most of February as the likelihood of the US Federal reserve increasing interest rates diminished and rating agencies left South Africa’s local and international credit rating unchanged.

Volatility was heightened, driven by oil which moved a massive 25.25% from low to high and drove volatility through the rest of the market.


The EUR and JPY continued to show strength as investors sought safety without the risk of interest rate hikes. The GBP continued it weakness and is now not far off the pivotal £1.4/$, which if broken on a weekly basis could be the start of a significant downside move. Oil staged a massive comeback. After being down 18% it ended flat, which helped commodity-based currencies (CAD, AUD, ZAR) strengthen.

The ZAR traded between 15.06 and 16.44–a wide 9% range – weakening during the budget speech, which coincided with a Brazil downgrade by ratings agency S&P.

This was the low point after which the ZAR rallied, ending the month down 1% vs the USD. Closing rates for February: EUR ZAR R17.31 (−0.8%); USD ZAR R15.90 (−1.0%); GBP ZAR R22.05 (−3.7%); EUR USD $1.089 (+0,2%); GBP USD $1,387 (−2.7%).


Global equities sold off aggressively at the start of February, following oil. The range on the S&P500 was 9.0% touching 1,807 before rallying into the end of the month. Low oil prices and the effect of this on inflation meant that analysts reduced their expectations for a US rate hike, whilst other countries reduced their central bank deposit rates into negative territory. In addition, a strong US payroll report and Q4 GDP figure also buoyed the markets. Closing levels for January: JSE ALSI 49,415 (+0.6%); EUROSTOXX 2,916 (−3.4%); S&P 500 1,945 (+2.0%); FTSE 6,075 (+1.0%).


The market seemed unconvinced about the budget speech as it appeared investors were looking for more clarity and commitment on spending cuts, state owned enterprise and tax hikes. On the day we saw SA credit spreads widen (increased spread over the interbank swap rate) 20 bps and government bond yields widen 13–18 bps. The purchasers price index (PPI) jumped to 7.6% and consumer price index to 6.2%, both above the SARB’s target range, indicating that another rate hike may be on the cards.

The Swap and Basis (difference between USD and ZAR swap curves) curves flattened with the front end rising more than the back end.  The market appears to be pricing in a near 100% probability of a 25 bps rate hike at the next SARB meeting.


Commodity prices seemed to have based and after a sharp sell-off in mid February the majority are on the rise. Gold continues to attract safe haven demand, especially as the risk of interest rate rises decreases. Oil producers appear to have reached an agreement on capping oil production.

Gold closed at $1,228 (+10.3%) and Brent crude at $33.22 (−1.1%).


The Eurostoxx index replaced oil as the worst-performing asset, down 16%. After a sharp drop oil recovered, ending down 13%. Bonds and gold continue to see safe haven buying with US 10-year note yields down 25% and gold up 16.8%. Although volatile, the rand is 2.5% weaker against the USD.


Poor Chinese export data, negative interest rates in many developed countries, and concerns over growth in emerging markets continue to weigh on investors’ minds. This is offset by strong growth and GDP data out of the US and oil prices that appear to have made a low.

It’s a tough call to make but technically, stock markets look set to continue their downward trajectory. The bounce in February looks overbought and is meeting some significant resistant levels. The uncertainty of a US interest rate hike also appears to have put the brakes on the USD strength. The rand still looks oversold and we will hopefully continue to see some more strength through March.

AUTHOR | Garth Saunders, CA(SA), CFA