Although normalisation and the consequent moves to higher policy and bond rates are probably one of the most expected and anticipated consensus trades that the collective market has ever anticipated, two things remain uncertain – namely timing and the degree of adjustment, both in the US and elsewhere.
In a normalising yield environment in the US, most investors expect emerging market (EM) currencies to come under pressure – particularly of those EMs running large (twin) deficits and vulnerable to capital flow reversals. South Africa is unfortunately part of this latter group of countries. If this is not challenging enough, we are also faced with stagflation – i.e. low growth and high inflation.