The rand weakened along with other emerging market currencies on Monday, touching its worst intraday level since November as investors digested disappointing Chinese data, which added to concerns about global growth.
Chinese data painted a dire picture of the world’s second largest economy. The country’s retail sales for April fell 11.1% against estimates of a 6.1% drop, while industrial production dropped 2.9% against estimates of a 1.4% increase. The Covid-19-driven lockdowns also saw Chinese unemployment rise to 6.7% in April.
The worse-than-expected data comes as fears mount about the prospects for the global economy in 2022, which has been battered by the fallout from the war in Ukraine and as central banks are expected to act rather aggressively to rein in inflation.
“Safe haven assets [such as the dollar] have risen in attractiveness, driven by global growth concerns on high inflation and expected high interest rate environments along with harsh lockdown restrictions in China on its zero-Covid policy stance,” said Investec chief economist Annabel Bishop. “China showing a concerning drop in economic activity across a broad range of its indicators, is proving worse than market expectations.”
The rand reached an intraday worst of R16.32/$ — last seen on November 26. At 5.10pm, the rand had weakened 0.33% to R16.2059/$, 0.17% to R16.8565/€ and 0.32% to R19.8481/£. The euro was 0.1% weaker at $1.0401.
The rand is down 2.4% so far this month and 1.6% year to date.
“The rand is suffering from a confluence of negative forces globally, driving risk off and at risk of seeing further weakness if these worsen. Domestically too, increased load-shedding, a fifth wave of Covid-19 cases and feed through effects from the global economy risk growth,” Bishop added.
Local focus this week will be squarely on the SA Reserve Bank, which is expected to announce a 50 basis point interest rate hike on Thursday. Consumer inflation numbers for April are due the day before, and are expected to show an acceleration from March’s reading of 5.9%.
“We expect a 50bp lift in the repo rate this week, and the market is currently pricing in a high chance of this. However with an increasing chance of global recession, and as a result, a severe negative impact to SA’s growth, the MPC may become more balanced to the risks,” said Bishop.
The JSE firmed 0.82% to 69,211 points and the top 40 was up 0.81% . The industrial metals and mining index rose 2.53%, resources 1.53%, banks 1.41% , and financials 1.21%.
At 5.50pm the Dow Jones industrial average had lost 0.3%, while in Europe, London’s FTSE 100 had gained 0.65%, France’s CAC 40 had lost 0.23% and Germany’s DAX was 0.45% lower.
Gold gained 0.12% to $1,813.26/oz, while platinum was little changed at $943. Brent crude was 1.25% firmer at $111.67 a barrel.
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