ETM Southern Africa Weekly Report: 3-7 May 2021

  • Regional PMI readings out of Mozambique, South Africa and Zambia headline the Southern Africa data card
  • South Africa’s political landscape is poised for some notable activity this week
  • Barring the ZMW, the month of April was a broadly positive one for currencies in the South African region

Southern Africa Week Ahead

  • Regional PMI readings out of Mozambique, South Africa and Zambia headline the Southern Africa data card in the week ahead. The readings will be eyed for further insights into the pace of recovery of countries in the region. Recall in March, South Africa’s Standard Bank PMI and Mozambique’s PMI readings were little changed, suggesting the recovery in business conditions stalled. Zambia’s Markit/Stanbic PMI meanwhile rose in March. Zambia’s PMI gauge nevertheless remained below the 50-neutral mark suggesting that business conditions continue to deteriorate albeit at a slower pace.                 

  • Aside from the PMI data in South Africa, Moody’s Investors Services is scheduled to provide a credit-rating review on Friday. While it is expected that Moody’s will leave SA’s sovereign credit rating unchanged at two notches below investment grade, the accompanying analysis and outlook provided by the agency will be of significance and could shift the spotlight back onto SA’s fiscal vulnerability.

  • Additionally, SA’s political landscape is poised for some activity with the ANC set to discuss how to implement its so-called ‘step aside’ rule for compromised comrades after Secretary-General Magashule seemingly defied orders to step down from his post by the end of April. The matter is expected to be discussed by the ANC’s National Working Committee today and at a meeting this weekend of the National Executive Committee. Note that the manner in which this issue is dealt with could be crucial for optics regarding the governing party’s “renewal process” and the broader reform narrative, which could affect investor confidence.

  • Another political focal point for the week ahead will be a Constitutional Court judgement on former-President Zuma’s failure to appear before the Zondo Commission of Enquiry despite being court-ordered to do so. If unpunished, Zuma’s defiance of the court could raise question marks over the integrity of SA’s legal system. Furthermore, the matter is being watched closely by investors at large looking to determine whether SA’s anti-corruption drive continues to develop as advertised.

  • On the news front, Botswana and her senior military officials will lead a SADC technical team that has recommended the deployment of a 3000 strong regional force to stop the ISIS insurgency in northern Mozambique. The team is urging the regional Heads of State to deploy intelligence assets as well as the sending in of special forces, according to Mmegi Online. Funding for the operation will come from the SADC Contingency Fund. Urgency is paramount given the need to restore confidence in the region as Total has recently called force majeure on its LNG project given the threats.

International Week Ahead

  • This week will be important for the US as the latest ADP, and non-farm payrolls data is released. They remain key variables that the market is keeping a close watch on, which will likely influence broader market sentiment. The data will also offer a clearer perspective on the strength of the economic recovery. The data is likely to start showing significant improvements as the momentum behind the recovery builds. Recent data sets have shown that a recovery is underway, and investors would be looking for confirmation not just in re-hiring but the quality of the jobs being generated.

  • This data always holds powerful market-moving potential and will offer further perspective on the inflation outlook and timing of any labour market tightening.

  • In the UK, the Bank of England (BOE) will deliver its latest verdicts on its interest rates. Expectations are for the BoE to keep any rate hikes on hold at its next meeting as well as maintain its current rate of asset purchases. However, the central bank will likely upgrade its forecast for Q1 GDP growth given stronger than expected retail sales in March as well as the UK’s strong vaccination drive. Additionally, the bank is likely to signal stronger growth persisting into Q2. On the CPI front, inflation has remained below 1% y/y since August, while higher inflation is expected in the coming months due to base effects and the release of pent-up demand and savings. Despite this, the extension of the UK’s furlough plan will be working alongside loose monetary policy for a swifter economic recovery, which the central bank will not want to impede until the pandemic is well in the rear-view.


  • Barring the ZMW, the month of April was a broadly positive one for currencies in the South African region. A dollar weighed down by loose for longer monetary policy, and widening twin deficits provided support for currencies in the region. The MZN (+17.9%) lead the advance, further underpinned by a recovery in tourism, foreign aid flows, and rising commodity prices. The ZAR (+1.9%) followed the MZN as high terms of trade also supported the currency. With commodity prices remaining elevated, we are likely to see the trade balance supported for some time still, and in turn, give the ZAR some level of resilience in the coming months.                               

  • The ZMW (-0.97%) underperformed its regional peers as demand for hard currency, driven by factors including debt servicing, continues to surpass supply. Note that the ZMW is trading at record lows and is down by over 5.0% on a YTD basis, making it the second-worst performing currency in the African region.

  • The USD surged on Friday and will have caught many short-sellers by surprise. The market was once again becoming dominated by the bears and the latest surge in the USD helped to clear some of these positions out of the market. Whether this recovery is sustained is questioned by most market professionals that see it as little more than a temporary clear-out rather than a longer-term trend. The weaker USD trend more broadly remains intact and will be supported by the ultra-accommodative Fed policy stance as well as the expansive fiscal policy despite the massive debt levels being accumulated. As a result of both, the US is consuming far more than it is producing and it shows up in the trade balance.

  • In the fixed income market, JSE bond flows data suggests that foreign investors shed SAGB exposure through April, but we will need to wait for the NT data to be released shortly before confirming. Price action corroborates, however. The rise in yields through the second half of April suggests that investors seem to be lightening up on holdings.

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