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Rand Report- State of the Nation Address

South African President, Cyril Ramaphosa will open up parliament with his State of the Nation (SONA) address on Thursday, 07 Februay 2019.

South African President, Cyril Ramaphosa will open up parliament with his State of the Nation (SONA) address on Thursday evening. In his speech the president will address South Africans on the current political and socio-economic conditions within the country.

Of key interest will be for the president’s outlining of progress relating to initiatives presented in the 2018 address, some of which include:

Regarding the youth

  • Implementation of the free higher education program
  • Creation of a million paid internships to tackle youth unemployment

Regarding transformation

  • How the government has helped black business grow in South Africa
  • The consultation process relating to land redistribution without compensation to increase agricultural production and food security

Regarding corruption

  • Changes in the board member and appointment processes
  • Tackling corruption in State Owned Enterprises (SOE) and corporate corruption

While the aforementioned may be key topics of focus for the president’s speech, a key area of focus will be if the president addresses the current Eskom (mounting debt) debacle. We have been expecting a turnaround plan for Eskom to be presented by the president anytime between late January and February, so perhaps the SONA event could be the platform to do so.

Of key interest will be what a rescue plan may mean for the state’s / tax payers’ purse. Speculation is that government could provide anywhere between R50m and R100m (needed) in assistance for the ailing SOE. The details of the funding of an Eskom bailout (should it be announced) are then expected to be highlighted in the Budget speech scheduled for later this month (February).

Any plans laid forth on a turnaround strategy for Eskom will be (arguably) the most meaningful item on the list for markets from the SONA event. Eskom bond yields have been moving in support of news relating to recapitalization and a turnaround of Eskom (whether it be at SONA or thereafter) nearing.

The Rand (Technical View)

The rand has been on a strengthening trend since September 2018. A lot of the movement against the dollar has however been due to a softer outlook in terms of US monetary tightening rather than from factors which are domestic.

In the short term we see a minor rebound on the USD/ZAR currency pair, highlighted with the white parallel lines. The rebound has taken the shape of a bearish flag formation, suggestive of further downside for the pair, should the lower support of this flag pattern break. In this scenario, a move to R13.05/$ would be favored, while a move above the R13.60/$ level would assume the failure of the bearish assumptions.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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