Market Trends May 2012

• ZAR under extreme pressure ,and risk volatility remains high/Fitch downgrades Japan
• Greece playing havoc with markets, Asian/Aussie markets all down

The volatile rand was weaker today as it tracks international markets which slumped on news that Japan had been downgraded and on concerns about the outcome of the EU meeting on the debt crisis, which deterred risk-taking.  Japan’s long-term foreign and local currency issuer default ratings were downgraded to A+ with negative outlooks over concerns of high rising public debt ratios, by ratings agency Fitch. The ZAR has weakened today as a result of the negative global sentiment. It seems that global growth concerns were at the centre of the prevailing risk-off trading environment. So it’s not surprising that safe-haven assets are being bid again today. I still believe that the ZAR is and will remain on a weakening bias into this morning’s local CPI data. CPI is expected to have registered 6.2 percent year on year in April from 6.0 percent y/y in March, according to a survey of leading economists The present rate of the rand this morning is ample demonstration of the above, after the rand closed the session around 8.2700, this morning the rand at 8.3500, that on the back of talk from the previous Greek prime minister that a Greek exit from the euro was almost inevitable and the cost and effect of a default would be profound and far reaching.

The uncertainty has caused risk aversion to take place and a flight into safer investments has and will take place. The focus is likely to remain on Europe for another week, with developments in Greece of particular concern. Greece cannot stay part of the Euro zone and still expect ECB bail-outs if you will not institute austerity measures to curb spending. Risk will remain off for a while and we will have pressure and volatility in the rand market. We can only advise our clients to stay hedged in these uncertain markets, especially the importers. Once we have certainty around Greece, and this will probably not come with next month’s Greek elections, Global markets and the rand should stabilize and we may resume the stronger rand environment of the previous view years. The market is very jittery right now, so the flight is into safe havens such as the US dollar and Swiss Franc, who are the benefactors at present. We must watch the Euro as I have been bleating on now for ages that the sovereign debt issue is nowhere near over. My view is we will be at these levels for a few days. Trading range for me 8.02-8.50.Exporters must take advantage of these rate and % sell their proceeds as the ZAR gets weaker. They should also put a stop 8.000 if the ZAR regains some of its losses. This will eventually transpire as what goes up must come down.

Asian indices fell reversing a two day advance and oil decline on concern that Greece is making preparations to quit Europe’s currency union. In Japan investors absorbed a rush of economic news, including a surprise cut to the nation’s credit rating by Fitch Ratings. EU leaders will hold an informal meeting in Brussels; the conference will focus on economic growth and investment. Australian dollar traded at a six month low of 97.65 down 0.30 percent.