Election hysteria, vaccine mania

Trump has yet to concede defeat, claiming irregularities in the voting process and vowing to take to the courts. The market seems to be ignoring this major risk factor at present.

The world was on edge while awaiting the outcome of the US presidential election over the last week. Many of the battleground states showed marginal differences between the two candidates, in the region of 0.02%, with the week ending in widespread uncertainty over who might become the next President. On Saturday, however, Joe Biden seemed to have taken the election.

As the market opened on Monday, we saw general “risk-on” behaviour across all asset classes. This was but an inkling of what was to come. Around midday, Pfizer released an update on its vaccine progress and revealed its trials are showing a 90% effective rate in preventing Covid-19. As soon as this news broke, a frenzy gripped the market, with risk assets gaining wildly. It was difficult to spot the loser in the market as broad-based buying was seen across the whole spectrum of risky assets. This in turn resulted in the ZAR strengthening to 20.03 against the Pound Sterling and to 15.20 against the Greenback.

It remains to be seen how long this rally in the ZAR will hold, as underlying fiscal problems do remain. Right now, the Rand is piggybacking off the global risk sentiment, but it should be noted that this can change relatively quickly with one headline or bit of news. Furthermore, there are rumours that the South African government is considering imposing new restrictions as second waive concerns arise.

In the new week it is advised to keep a close eye on global developments, as a multitude of factors are at play that can influence the currency markets. The main factors to consider include the continued rise of second wave Covid-19 infections across Europe and the US, Trump’s reluctance to accept the election results, whether SA does reimpose harsher restrictions and any news on the vaccine. Overall, it will be a volatile week, not even considering the data events on the horizon.