The South African rand has softened a bit recently, joining other emerging market currencies like the Turkish lira and the Chinese yuan. The USD/ZAR exchange rate was trading at 18, up by 5.86% from its lowest level this year. 

South Africa’s potential political crisis

The USD/ZAR pair has bounced back recently as concerns about the political situation deteriorated slightly. 

In a recent statement, the Democratic Alliance party warned that it may leave the government if Cyril Ramaphosa fires the Minister of Education, Siviwe Gwarube. 

The recent crisis started a few months ago after the two parties differed sharply on the Basic Education Laws Amendment Bill. While the two sides ironed out the issues and the president signed it into law, tensions have remained.

Therefore, there is a risk that the two parties will ultimately fall out as many coalition governments do. A good example of this is what is happening in France and Germany. The French government has collapsed, while the German coalition is on shaky grounds.

A collapse of the South African government would have some serious consequences in the long term. Besides, it is unclear which other party the Africa National Congress (ANC) would work with in the country.

The coalition government has brought substantial stability in the South African economy, attracting positive reviews from rating agencies like Moody’s and Fitch. Business and consumer confidence have rebounded, and the economy is on a road to recovery.

Also, the perennial power crisis that has affected the country has improved in the past few months. As such, a political crisis would likely undo all the good things that have happened after the last general election.

Geopolitical risks and the Fed

The USD/ZAR pair has rallied as many emerging markets prepare for the new Donald Trump administration.

Trump has pledged to implement large tariffs on imports, especially from countries like China, Mexico, and Canada. 

He may also implement some tariffs or even sanctions on South Africa for its lawsuit against Israel. 

Therefore, most emerging market currencies like the Chinese yuan and Brazilian real have all retreated amid these geopolitical concerns. 

The USD/ZAR exchange rate has also jumped because of the rising hopes that the Federal Reserve will be more hawkish in the coming meetings. Recent statements by officials have confirmed that the bank plans to embrace a more gradual phase of cutting rates.

Therefore, analysts expect that the Fed will cut rates by 0.25% in the next meeting and then embrace a strategic pause. Currencies like the South African rand often drop when the US dollar index is strong.

The USD/ZAR pair also retreated after the South African Reserve Bank (SARB) delivered a 0.25% rate cut in its November meeting. It has now slashed rates by 0.50%, and the bank has hinted that this trend will continue in the coming meetings.

USD/ZAR technical analysis

The daily chart shows that the USD to ZAR exchange rate has been in a tight range in the past few days. It was trading at 18, higher than the year-to-date low of 17.

The pair has moved above the 50-day and 100-day Exponential Moving Averages (EMA). It has also formed a bullish pennant chart pattern, which is made up of a vertical line and a symmetrical triangle pattern.

Therefore, there is a likelihood that the pair will have a strong bullish breakout in the next few days. If this happens, the next point to watch will be at 18.67, its highest level on August 5. The stop-loss of this trade will be at 17.8. 

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The Hang Seng index held steady after another weak Chinese economic report. The index, which tracks the biggest companies in Hong Kong, was trading at H$19,755, up 3.5% from its lowest level this month.

China deflation continues

The Hang Seng index remained on edge after data by China’s statistics agency showed that the country remained in a deflation phase in November.

The headline Consumer Price Index (CPI) retreated from 0.3% in October to 0.2% in November, missing the average estimate of 0.5%. It retreated by 0.6% month-on-month, also missing the estimated drop of 0.4%. 

These numbers mean that the Chinese economy is still in a period of deflation, where prices are constantly falling. While customers favor lower prices, deflation is usually a sign that an economy is not doing well.

The other notable sign that the Chinese economy is not thriving is that the local currency has crashed hard in the past few weeks. Data shows that the USD/CNY exchange rate rose to 7.30, its highest level since November last year. It has risen by 4% from its lowest level in November this year.

This price action is because of the potential trade war between the United States and China. Trump has threatened a 25% tariff on Chinese imports to the United States. He has also appointed China hawks like Peter Navarro, Marco Rubio, and Mike Waltz to be senior officials in his administration. 

These actions could have a major implication on the trade flows between two of the most important trade partners. According to the Brookings Institute, the last trade war between the two countries had more pain than gain for both sides.

Top Hang Seng index movers

A closer look at the Hang Seng companies, we see that financial services and real estate companies were among the top laggards on Monday. 

Longfor Properties stock dropped by over 3% on Monday, continuing its downtrend that has seen it lose about 75% of its value since 2021. 

Wharf Real Estate also retreated by 1.4% and by over 50% from its highest level this year. Other real estate stocks like China Resources Land and Henderson Land also continued their strong downtrend.

Financial services like HSBC, Hang Seng Bank, Ping An Insurance, and AIA Group also dropped by over 1% on Monday. 

On the other hand, some of the top-performing Hang Seng index companies were firms like Orient Overseas, ENN Energy, BYD Electronic, and WuXi AppTech. BYD stock surged by over 8% after the company announced that it had exceeded its sales goal for the year. It will sell more vehicles than Ford and Honda this year. 

Hang Seng index analysis

HSI chart by TradingView

The daily chart shows that the Hang Seng index has pulled back sharply in the past few weeks. It has dropped from the year-to-date high of H$23,250 to about H$19,710. 

The index has moved below the important support at H$20,000, the 38.2% Fibonacci Retracement level. 

On the positive side, the index has remained above the 200-day Exponential Moving Average (EMA). Also, it has formed a falling wedge pattern, which is made up of two falling and converging trendlines. 

The falling wedge pattern is now nearing its confluence level, meaning that a strong rebound cannot be ruled out. If this happens, the index will likely rise to the next point at H$20,500. A move above that level will see it rebound to H$21,000. 

The risk, however, is that the Hang Seng index has formed a small rising wedge pattern, which may result into a strong bearish breakout. A drop below the support at H$19,000 will invalidate the bullish sign.

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The Zimbabwe ZiG currency has stabilized a bit in the past few weeks, helped by the central bank actions and higher gold prices. The official USD/ZIG exchange rate was trading at 25.6 on Monday, down from the year-to-date high of almost 30. 

According to ZimPriceCheck, the black market rate was about 40, which is still significantly higher than the all-time low of below 15. 

Higher interest rates

The Zimbabwe ZiG has rallied because of the recent actions by the central bank that have made it more resilient.

In a statement last week, the central bank left interest rates at 35%, the highest level in Africa. It also signaled that it would maintain higher rates for longer to deal with the elevated inflation rate in the country. 

Zimbabwe is still seeing elevated inflation in the country because of the relatively weaker local currency. While it has stabilized a bit recently, it remains significantly weaker than where it was trading in April when it was launched.

Most of the Zimbabwe ZiG’s crash happened after the central bank devalued it by about 40% in September. The goal of this devaluation was to reduce the spread between the official and the black market interest rates in the country. 

Higher interest rates in Zimbabwe have helped to boost the ZiG by making it an attractive currency for investors. The most recent data showed that consumer prices in Zimbabwe rose 11.7% in November after jumping by 37.2% in October. 

Investors are therefore optimistic that investing in Zimbabwe’s bonds or money market funds will bring positive returns, at least in the short term.

Read more: From 13.5 to 40: Here’s why the Zimbabwe ZiG is imploding

Higher gold prices

The Zimbabwe ZiG currency has also improved because of the rising gold prices. Gold was trading at $2,640, a few points below the year-to-date high of $2,787. 

Analysts are optimistic that the price of gold will continue doing well in the long term because of the rising US public debt. Data shows that the national debt has jumped to over $36.2 trillion and could end the year at over $36.5 trillion. If this trend continues, then the debt will get to $40 trillion in the next few years. 

Gold is often seen as a better alternative to the US dollar in terms of its role as a reserve currency. This explains why many governments have continued to accumulate gold this year. 

The Zimbabwe ZiG is backed by gold and the US dollar. As such, its value tends to do well when the price of gold is doing well.

Zimbabwe ZiG risks remain

The Zimbabwe ZiG still faces substantial risks ahead. The biggest risk is that of confidence since the country has had multiple currencies in the past few decades. All these currencies always collapse. The most recent one was the RTGS Zimbabwe dollar, which fell by 80% in the first three months of the year. 

Many Zimbabweans have seen their savings in local currencies evaporate and are unwilling to save in the currency. As a result, the US dollar demand has remained significantly higher since it accounts for over 70% of all transactions in the country. 

Analysts also cite the fact that the government will ultimately need more money and fuel the printing of the cash. Unlike many other countries, Zimbabwe has limited foreign reserves and it often lacks access to external markets. 

Additionally, maintaining a currency peg is one of the most difficult things, especially if you don’t have adequate reserves. The Hong Kong dollar peg has held steady over time because of the city’s substantial foreign reserves.

Therefore, while the Zimbabwe ZiG has improved recently, there are rising odds that it will resume the downward trend in the longer term.

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Rolls-Royce share price resumed its strong rally and jumped to its all-time high of 598p on Friday. It has jumped by over 1,500% from its 2020 lows, making it the best-performing company in the FTSE 100 index. This rally has brought its market cap to over £50 billion, making it the 15th biggest company in the UK.

Strong demand across the board

Rolls-Royce stock price has jumped as investors focus on the strength of its business across all segments. 

The civil aviation sector is doing well as the number of flying hours continue rising. Indeed, many aviation stocks like United Airlines, Delta, and IAG are some of the best-performing companies this year. 

Rolls-Royce is also seeing robust order intake from some of its top companies as demand for wide-body engines rises. 

The defense segment is also firing on all cylinders as the rising geopolitical tensions rise. Most countries, led by the United States are boosting the amount of money they spend in procurement. This trend will continue in the coming years as these geopolitical tensions rise, which will help its transport, combat, and submarines business. 

The company’s power business is also thriving, helped by the ongoing demand from data center companies and utilities. Rolls-Royce will be one of the top beneficiaries as companies and governments embrace nuclear energy. It is working on small modular reactors in the UK.

Therefore, this rising demand, coupled with the ongoing cost management strategies, have helped the company do well in the past few quarters

Turnaround is going on well

The company hopes to become a more profitable firm in the next few years. Its mid-term target calls for its operating profit to move to between £2.5 billion and £2.8 billion by 2027, a big increase from the £1.6 billion it made in 2023.

Rolls-Royce also hopes that its operating margin will increase to between 13% and 15%, while its free cash flow will be between £2.8 billion and £3.1 billion.

There are signs that the management will achieve these goals ahead of schedule. Its civil aviation operating margin rose from 2.5% in 2022 to 11.6% in 2023. It hopes that the margin will get to 15.17% by 2027. 

The defense segment’s margin is expected to move from 13.8% to between 14% and 16% by 2027. Also, the power systems division is making progress to achieve its 12-14% margin target.

Rolls-Royce share price has also done well as the company slashes costs and expands to other areas. It has already shed thousands of jobs in the past few years and sold some of its less profitable divisions. The company is also slowly moving to the more lucrative narrow-body aircraft engines.

Still, there are some concerns about the company. There are still supply chain challenges in the defense business. Also, there are concerns about its pricey valuation since the company trades at a high premium. 

Its current market cap of £50 billion implies a 17.8x forward 2027 operating profit, which is relatively higher than its historical levels. 

Rolls-Royce share price analysis

The weekly chart shows that the Rolls-Royce stock price has been in a strong uptrend in the past few years. It crossed the important resistance level at 443p, its 2023 highs and its previous all-time high. The stock has jumped above all moving averages, a sign that it has momentum. 

By measuring the depth of the cup pattern, and extending it from its upper side at 443p, we estimate that the bull run could see it jump to 847p, which is 44% from the current level. 

The key risk is that the stock has formed a rising wedge pattern, a popular reversal sign. Also, there are signs that the MACD and the Relative Strength Index (RSI) have formed a bearish divergence pattern.

Therefore, the most optimistic view is where the stock rises to 847p in 2025, while the pessimistic view is where the divergence patterns pushes it to 443p.

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The Euro Stoxx 50 index has staged a strong comeback in the past few days. The index, which tracks the biggest European companies, has risen in the past six consecutive days, reaching a high of €4,977, its highest point since October 29. It has jumped by about 6% from its lowest level in November.

European Central Bank decision

The Euro Stoxx 50 index has recovered modestly and is on a path toward its all-time high as traders wait for the upcoming European Central Bank decision.

Economists expect the bank to cut interest rates for the fourth consecutive time since the European economy is not doing well.

Data released last week by S&P Global showed that the bloc’s manufacturing and services PMIs remained under pressure in November. 

Another report showed that the German industrial production continued falling in October as companies like BASF and Volkswagen slows. 

European inflation has also moved near the 2% target level of the central bank, while the labor market is softening in some countries. 

Therefore, analysts believe that the ECB will cut interest rates by 0.25% in this meeting, a move that will boost the Euro Stoxx 50 index. Historically, stocks do well when central banks are cuttng rates. 

The Federal Reserve is also expected to continue with its easing cycle this month. It has already slashed interest rates two times this year, and analysts see it slashing by another 0.25% in its final meeting of the year.

Fed actions have an impact on European stocks because of the vast number of companies that do business in the US. The US is one of the biggest markets for companies like Volkswagen and SAP. 

Still, a key concern among investors is that Donald Trump may start to implement tariffs on European goods because of the large trade deficit between the two regions. Tariffs tend to have a negative impact on trade flows between countries. 

These tariffs would come at a difficult time for European companies, which are now struggling to compete with their Asian companies. For example, the automobile sector is being disrupted by a company like BYD that is now selling millions of vehicles annually.

Top Euro Stoxx 50 movers

SAP, the giant software company, is the best-performing company in the Euro Stoxx 50 index this year as it jumped by 74%. It has done well because of its strong recurring revenue growth and its investments in artificial intelligence. 

Prosus, a global investment company that was previously owned by Naspers, is another top performer as its stock rose by almost 50% this year. The company has done well as technology companies have bounced back. Analysts expect that it will now take some of its portfolio companies public or sell them. 

Ferrari stock price has surged by 40% this year as demand for luxury vehicles continued rising. It is one of the best-performing automobile stocks this year. 

The other top performers in the Euro Stoxx 50 index are Flutter Entertainment, Inditex, Schneider Electric, and Allianz.

On the other hand, some of the top laggards are firms like Stellantis, Deutsche Post, L’Oreal, Pernod Ricard, BMW, Kering, and Volkswagen. All these companies have a large exposure to China, a country that is not doing well.

Euro Stoxx 50 index analysis

The daily chart shows that the Euro Stoxx 50 index has bounced back in the past few weeks. It has rallied and crossed the 200-day and 50-day Exponential Moving Averages (EMA). The two averages are about to form a bullish crossover known as a golden cross. 

The index has also formed an inverse head and shoulders pattern, a popular bullish reversal pattern. Also, the Relative Strength Index (RSI) and the MACD indicators have all pointed upwards.

Therefore, the index will likely have a strong bullish breakout as bulls target the next key resistance level at €5,000. A move above that level will point to more gains in the near term. 

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