Morning Brief – Never a dull day

Never a dull day

Yesterday South Africa headed to the polls in what was expected to be the most closely contested election in decades. Clearly not wanting the scrutiny of international markets to falter, we await an interest rate decision in South Africa later today also. Of course, in fact this is not abnormal. The metronomic publication of central bank decisions should and does not stop for political events such as elections. The private ownership and scrutiny of the SARB does often leave it as an outlier in many cases. However, perhaps not in this one. Take the US election this year on November 5th. The next day the US Fed will meet and come the 7th will publish its latest announcement. Despite the normality of the sequencing of these key political economic events, overnight implied volatility is now observed at a colossal 33% in USDZAR.

As might be expected, whilst votes are still being counted from the election that concluded at 9pm yesterday, there is no adjustment in benchmark rates expected from the Reserve Bank today at 3pm local time. Instead, let’s take a look at how the early results of the election are shaping local markets today. The vote count is ongoing but so far has forced some selling pressure on the Rand and other domestic assets. As of shortly after 7am this morning only 10% of districts had completed their vote counting. However, as we approach a sufficient threshold in the completion of the vote count, reliable forecasts for the ultimate voting outcome begin to become feasible.  

So far, the vote share for the ANC has underperformed. This outcome, currently projected around the 40% level, will drive expectations that the ruling ANC party would have to form a market-unfriendly coalition with the EFF or MKP. This is the reason why key Rand crosses are pointing markedly higher this morning. Under the outcome of an alliance of the ruling ANC and Democratic Alliance, the Rand and other local assets had been expected to perform well. Despite the initial sell off in the Rand, be reminded that it remains very early on in what will be a very long day for South Africa in markets. 

Discussion and Analysis by Charles Porter

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