Saturday, 25 June 2016

Rand to stay turbulent after Brexit victory – analysts

On Friday, analysts were taken aback by the rand's dive following the Brexit victory to lower levels than when President Jacob Zuma fired Finance Minister Nhlanhla Nene


Rand Merchant Bank analyst John Cairns was alarmed that the currency’s losses against the dollar had swung between 5,5% to 8,5% on Friday, worse than the 5% crash when Nene was fired.

“This is at the larger end of the ranges that we had expected,” he said. “The rand has been an underperformer, for no particular reason that we can think of,” he said. “This allows some scope for recovery, but this will be swamped by the broader global moves.”

Umkhulu Consulting’s Adam Phillips was just as taken aback.

“I am not sure what to write because even up to when I went to bed at midnight it looked like the Remain [camp] were going to win,” he said. “As it stands, this is a disaster for all emerging market currencies.”

Cairns said the extreme rand volatility will continue on Friday.

“Ran
Rand to stay turbulent after Brexit victory – analysts
 spreads have been so wide you could drive a UK Independence Party bus through it,” he said. “These will narrow as Joburg and London trade gets going, but will remain wide relative to normal.

“These losses might only be the start. No doubt many London traders are already at their desks, if they ever left them, but we’ll need to see the full force of London and Wall Street before we can truly gauge the effects.

“Expect an extremely volatile day ahead. Some global banks are even suggesting 20% losses across some equity markets.”

“The fires of British nationalism have led the UK to escape the EU. But the question is whether the EU will be able to escape the fires of British nationalism: if UK economic weakness or, more worryingly, anti-EU sentiment, spreads to the continent then the world will be in trouble,” Cairns said.

“Markets have certainly been volatile so far,” he added. “To rattle off some numbers quickly: the Nikkei is down 7,5%, Wall Street futures 4,5% and oil 5%. In the currency markets, sterling has dropped 10%, the euro 4%, while the yen has gained 4,5% and the Swissie 2,5%.

“Global policymakers will be sweating, having been fully suited up since early this morning,” he said. “Initial focus will be on dealing with liquidity shortages, notably of dollars. Multi-week the focus will be on policy rates.

“One silver lining from the result is that the Fed will hold off from hiking, while the BoE and ECB could ease further.” News24Wire

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