Capital outflow and Trump policies further rand decline

THE RAND extended losses to a third day on Friday and headed for the biggest weekly slump since August on concerns that Donald Trump will pursue policies that can spur capital outflows from developing economies and weaken their exports. The currency slipped 1.91 percent to R14.94 against the dollar.

The weekly decline of 5.1 percent is the most since the five days ended August 26, when local markets were roiled by concerns that Finance Minister Pravin Gordhan would be arrested.

The most the rand had lost before that was in December, when President Jacob Zuma fired then-finance minister Nhlanhla Nene.

Three-month implied volatility on the rand is at the highest since October 17 and the most among emerging markets.

Trump has signalled he will adopt more protectionist trade policies, while introducing fiscal stimulus that will probably hasten US interest rate increases that will draw investment to the dollar and away from high-yielding emerging market currencies.

Offshore investors sold R5 billion of South African government rand bonds on Thursday, the most since September 2011, amid a sell-off that wiped $1 trillion (R14trln) off global bond markets.

“The markets suspect that Trump will likely be dollar positive, reflating through fiscal policy, and protectionist,” said Nigel Rendell, a senior emerging markets analyst at Medley Global Advisors in London.

“That boils down to higher US interest rates and less trade opportunities for emerging market economies. Until we know more about what a Trump presidency will be like, the policies and personalities, it will be difficult for emerging market currencies, including the rand, to carve out an independent path.”

Important data last week include retail sales and the Quarterly Labour Force Survey. Retail sales growth for September is forecast to have lifted to 1 percent year on year from 0.2 percent year on year in August, remaining below the average of 2.3 percent year on year so far.

“We’ve had a slew of results that have disappointed and it’s not looking as if there will be any improvement,” Independent Securities trader Ryan Woods said.

“There are worries over the consumer not being able to service debt,” Woods said.

Weak growth

Kamilla Kaplan, an economist at Investec, said: “The ability and willingness of consumers to spend has been affected by weak growth in real disposable incomes, depressed consumer confidence, muted rates of credit extension to households and higher taxes and interest rates.

“Heading into next year, the expected more benign consumer price index inflation environment will provide some relief to the financial position of households.”

The Quarterly Labour Force Survey should paint a rather bleak picture of the labour market, according to FNB economists. Figures for the third quarter were likely to reflect that the unemployment rate remained elevated at 26.4 percent.

FNB said an improvement in the unemployment rate would likely be as a result of an expansion in discouraged work seekers – the expanded definition of unemployment will be closer to the truth. “The economy has struggled to create jobs for some time and, as such, we do not expect any improvement anytime soon.” – Additional reporting by Bloomberg