21 September 2023
Support & Resistance Levels
Data This Week
ZAR traded in a narrow range of R18.8000/$ to R18.9500/$ in early trading after Hawkish Fed pause.
Today’s Market & Resistance Levels
Data This Week
Nothing of significance
11H00 EU INFLATION 5.3% EXPECTED YOY
14H30 US BUILDING PERMITS 1.44MM
08H00 UK INFLATION 7.1% CPI YOY EXPECTED
10H00 SA INFLATION 4.9% EXPECTED VS 4.7 PREVIOUS
13H00 SA RETAIL SALES -0.5% MOM EXPECTED VS +0.2% PREVIOUS
20H00 US FED FOMC RATE DECISION – UNCHANGED EXPECTED
20H30 US FED PRESS CONFERENCE
15H00 SA SARB MPC UNCHANGED REPO AT 8.25%
16H00 ECB LAGARDE SPEAKS.
01H30 JP INFLATION AT 13H30
05H00 JP BOJ DECISION
The ZAR drifted in early trading – trading between R18.8000 and 18.9000 ahead of the MPC at 15H00.
Markets are priced for no additional hike from the SARB, but comments on future policy will be carefully scrutinised – this on the back of inflation staying in the SARB’s 3% – 6% band.
Markets are still digesting the Fed’s hawkish pause and “higher for longer” comments and an increase in the terminal rate for 2024.
- All these factors resulted in a risk-off Asian session with stocks sharply lower.
The US 10YT spiked higher at 4.42%. The yield on the US 10-year Treasury note rose above the 4.4% mark.
- Rates at a new 16-year high after a hawkish FOMC preserved selling pressure for government bonds in the secondary market.
- Also, the yield on the 2-year note jumped to 16-year highs, widening the current yield curve inversion.
BUT… The BOE surprised the market with no rate hike even though the market called for 25bps.
- Sterling fell sharply on the back of the news.
Markets now await SARB MPC at 15H00.
Trade: Buy USDZAR on Dips – Add Through R19.10/$
-76 to 34,440
-41 to 4,402
-209 to 14,990
Image: Trading Economics
JSE UNDER PRESSURE
The JSE was down nearly 2% in morning trading after risk-off sentiment hit the local market.
Stocks were lower with mining stocks leading the decline.
The ALSI was dragged down by tech and platinum stocks, with the main decliners being Anglo American Platinum (Amplats), Northam Platinum and Impala Platinum (Implats).
Amplats was the biggest loser amongst the JSE’s Top 40, with its share price trading over 7% down, at around R677.04 a share.
However, the biggest contributor to the JSE being in the red was due to the more than 3% slump in the Naspers/Prosus stable.
The Alsi was at 73 260 points at 12H00, over 1560 points lower or 2.09 down.
Naspers traded 3.6% down, with the stock losing over R116 a share at R3 029.88 around midday, while Prosus lost almost 4%, trading at R557.30.
ESKOM FUNDING CONCERNS
The Electricity Minister says Eskom is not sitting with a ‘money problem’, and has enough for diesel.
Giving answers in the National Assembly on Wednesday, the Electricity Minister said Eskom has ring-fenced R30 billion for the purchase of diesel, and that stage 6 loadshedding was because of a maintenance issue, not the lack of diesel.
Ramokgopa said the Treasury has allocated the ailing power utility R254 billion to address liquidity challenges, alongside the R30 billion for diesel.
“During the winter period of April to the end of July we underspent relative to our projections, so you are not sitting with a money problem.”
He said Stage 6 loadshedding was because of “triple maintenance”.
“The reason why you had stage six load shedding was as a result of our efforts to ensure that we triple the maintenance of the power stations.” Source: EWN
SA bonds extended their slump to the longest since the pandemic.
Yields on rand debt due in 2035 have climbed to 12.12% in the longest selloff for the bonds since the nine days ended June 17, 2020.
SA bonds are headed for an eighth consecutive day of declines, a losing streak last seen at the height of the Covid pandemic.
Concerns that the mid-term budget in early November will reveal a wider-than-expected deficit are weighing on sentiment.
Analysts are concerned about missed tax-collection targets, state-owned company bailouts and relentless power cuts that have hobbled economic growth.
Any additional government bond sales in the local market to close funding gaps would come at a time of already high issuance.
US stock futures edged lower on Thursday after the Federal Reserve kept interest rates unchanged as largely expected but signalled another rate increase before the end of the year.
In regular trading on Wednesday, the Dow lost 0.22%, the S&P 500 fell 0.94% and the Nasdaq Composite tumbled 1.53%, technology and consumer discretionary.
Notable losses were seen from mega-cap technology names such as Tesla (-1.5%), Nvidia (-2.9%), Apple (-2%), Microsoft (-2.4%), Amazon (-1.7%) and Meta Platforms (-1.8%).
Meanwhile, Fed Chair Jerome Powell indicated that a soft landing for the economy was still possible, but not his baseline scenario.
Source: Trading Economics
The yield on the US 10-year Treasury note rose above the 4.4% mark, a new 16-year high after a hawkish FOMC preserved selling pressure for government bonds in the secondary market.
Also, the yield on the 2-year note jumped to 16-year highs, widening the current yield curve inversion.
After delivering its largely expected hold, the Fed challenged market bets and signalled that it may hike its funds rate in November amid rising inflationary risks.
The Summary of Economic Projections showed that policymakers held the terminal rate forecasts at 5.6% and trimmed the extent of rate cuts next year, raising projections by 50bps to 5.1%, and consolidating previous warnings that borrowing costs will remain higher for longer.
Stocks are lower after the FED announced a hawkish pause.
In Japan, the Nikkei 225 dropped 1.37% to close at 32,571 – hitting their lowest levels in a week and taking cues from a negative lead on Wall Street.
The US Federal Reserve held interest rates steady but signalled another rate hike before the end of the year and fewer rate cuts than previously indicated next year.
The Bank of Japan will also announce its monetary policy decision on Friday, where investors will focus on clues about a possible end to ultra-loose monetary settings.
Technology stocks led the decline, with sharp losses from SoftBank Group (-3.2%).
Oil lower after FED indicates higher for longer rates.
Brent crude futures fell toward $93/bl on Thursday – sliding for the third straight session as the US Federal Reserve delivered a hawkish pause.
The US central bank left interest rates unchanged as widely expected but signalled another rate hike before the end of the year, raising concerns about global economic growth and energy demand.
Other central banks are also set to announce monetary policy decisions on Thursday, headlined by an expected rate hike from the Bank of England.
Meanwhile, official data showed that US crude inventories fell by 2.135 million barrels last week, broadly in line with expectations.
Still, oil prices remain close to multi-month highs due to extended supply cuts from Saudi Arabia and Russia.
Precious metals are higher.
Gold weakened below $1,930 an ounce on Thursday, retreating further from multi-week highs amid a general dollar strength after the US FED delivered a hawkish pause.
The US central bank left interest rates unchanged as widely anticipated but signalled another rate hike before the end of the year.
Meanwhile, the Bank of England also resolved to halt its tightening campaign due to cooling inflationary pressures.
Still, the officials noted further rate increases were not excluded.
Investors will now look ahead to the Bank of Japan’s update on monetary policy on Friday, hoping for a possible end of negative rates.
The Dollar is steady ahead of the FED.
The dollar index strengthened above 105.5 – hitting its highest levels since early March after the FED signalled a rate hike may be still on the table.
The Fed kept the target range for the fund’s rate at 5.25% – 5.5% but projections released in the dot-plot showed the likelihood of one more increase this year, then only two cuts in 2024.
As a result, the Japanese yen weakened past 148 per dollar, the lowest since early November as the BOJ is expected to keep its key short-term interest rate at -0.1% on Friday.
Also, the Euro was down 0.2% after last week the ECB increased rates by 25 basis points to reach fresh multi-year highs and signalled that it had likely completed its tightening cycle.
Finally, the pound extended the decline to $1.234, its lowest point since the end of May, as investors reduced their expectations for future rate hikes by the BOE, considering lower-than-anticipated inflation data.