With the Jackson Hole Symposium behind us, the biggest event of last week was the US non-farm payroll number that was released on Friday. The number missed the mark by a considerable margin, expectations were for 733,000 jobs to be added, but only came out at 235,000. The markets turned “risk-on” after the release of the data. The immediate fallout after the number was the rand and other emerging market currencies traded stronger into the weekend, with the rand testing the R14.25 level.
When looking at the US jobs report, a few things stand out: the largest sector of employment usually, the leisure and hospitality industry, suffered a significant reduction in numbers. This was ascribed to the COVID pandemic’s Delta variant’s impacts. However, there were some shining lights in the report, with the unemployment number coming in lower than expected and the average weekly wage also jumped. The fact that the summer is coming to an end in the northern hemisphere, combined with Delta variant concerns, are the main contributors of lower NFP numbers and stalling economic activity.
With that in the back of our minds, it could be one of the reasons why the US dollar failed to break significantly above the 1.19 level, and we have seen the dollar slowly trudging back to the levels where it was prior to the release of the US non-farm payrolls numbers. We expect the US dollar to be off to a languid start this week as the US market was out on Monday as they celebrated Labour Day.
Locally we saw the South African trade surplus contract to R36.9 billion in July, compared to a downwardly revised R54.5 billion in June and below market expectations of R45 billion. There is a little dearth of significant data that is out this week. The South African GDP number, which will be released today, as well as the current account on Thursday, will be of interest. We expect a significant increase in the YoY number as the base effect will be significant as South Africa was in lockdown during this time last year. Unless the number disappoints, we expect little effect on the rand as international events are currently driving the market. The current account will continue to show a surplus.
We saw the rand on the front foot last week as the rand has done more than 7% in the previous weeks. Normally with such a strong move in a currency, it is normally met with a period of consolidation, and we could see the rand give up some of its gains, especially in a week where there is few events or data to shift the market. From the chart below, a base around R14.25/30 level could be the base for consolidation.