Afternoon Note
26 September 2023
Support & Resistance Levels
Data This Week
Market Highlights
Market Close
South Africa
Global Markets
Overnight Headlines
ZAR weaker on the back of a rampant Dollar and rising global yields.
Today’s Market & Resistance Levels
Data This Week
Monday
Tuesday
16H00 US NEW HOME SALES DATA 0.7MILLION EXPECTED
19H30 FED BOWMAN SPEAKS
Wednesday
01H50 BOJ MINUTES
14H30 US DURABLE GOODS ORDERS -0.5% MOM -5.2% PREVIOUS
Thursday
11H30 SA PRODUCER INFLATION MOM 0.5% EXPECTED
11H30 SA PRODUCER INFLATION YOY 3.7% EXPECTED VS 2.7% YOY
14H30 US GDP GROWTH 2.1% EXPECTED QOQ VS 2% PREVIOUS
14H30 US INITIAL JOBLESS CLAIMS 215K VS 201K PREVIOUS
Friday
14H30 US PCE 3.5% EXPECTED VS 3.3% PREVIOUS
14H30 US CORE PCE 0.2% EXPECTED VS 0.2% PREVIOUS
Market Highlights
The ZAR trading weaker, touching R19.0400/$ as we approach mid-day.
ZAR declining along with other risk assets against a rampant Dollar.
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- Traders citing the rise in global yields as a major risk for emerging market currencies as the attractive carry run the risk of being eroded.
Major stock markets also feeling the pressure of rising yields with both the SP500 and the tech-heavy Nasdaq sharply lower.
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- The US10YT at 4.50% at the time of writing allowing for the Dollar to scale 10 month highs on the back of a hawkish, Fed outlook due to persistently high inflation.
- The US central bank kept interest rates unchanged at its September policy meeting, but signalled another rate hike before the end of the year and fewer rate cuts than previously indicated next year.
- The dollar scaled multi-month highs against the euro, sterling and the Yen.
KEY data points this week will be the US GDP and US PCE on Friday. Stronger data likely to support the Fed’s hawkish pause.
- The Dollar however remaining well bid , and we can expect the ZAR to remain under pressure in this environment.
- NB: We remain inside the range i.e. 18.7500-19.1000, and it would require a sustained break on either side to set up a new directional leg.
- A risk off session in New York likely to lead to more ZAR losses.
Trade: Buy USDZAR on dips, add through R19.10/$
Market Close
DOW
+43 to 34,006
SP500
+17 at 4,337
NASDAQ
+59 to 14,759
Overnight Trading
Image: Trading Economics
South Africa
CAPE OF STORMS
The City of Cape Town says its Disaster Operations Centre has received confirmation of eight fatalities caused by electrocution.
This as damaging winds and heavy rains lashed the province over the long weekend, resulting in widespread flooding and severe damage to electrical infrastructure.
Weather conditions have since taken a turn for the better, and mopping-up operations and damage assessments are set to get underway.
City officials said the eight fatalities included four victims in informal settlements.
When police responded, they found residents retrieving the bodies of four boys from a local dam.
They were declared deceased on scene, and an inquest has been registered for further investigation.
Source: EWN
SARB POLICY STANCE – PRICE STABILITY
The central Bank’s governor warned that persistent inflationary pressures, such as higher fuel and oil costs and stagnant economic growth, could lead to another repo rate hike in the future.
SARB Governor Lesetja Kganyago again defended the central bank’s decision to keep borrowing costs high as it continues to try and push inflation down.
This comes after SARB kept the repo rate unchanged at 8.25% for a second consecutive time.
During Thursday’s announcement, Kganyago warned that persistent inflationary pressures could lead to another hike in the repo rate.
This includes higher fuel and oil prices, extended runs of load shedding, and stagnant economic growth.
“Our focus is not on what borrowers want or what savers want but our focus is attaining price stability”.
Source: Moneyweb
Global Markets
Stocks
Stock futures in the US were lower on Tuesday, with contracts on the three major averages falling nearly 0.6%, and reversing Monday gains.
Concerns remain about high interest rates for an extended period and renewed inflationary pressures stemming from rising oil prices linger.
At the same time, Treasury yields remain at 16-year highs and the dollar extended gains to the strongest level in almost eleven months.
Investors were also closely monitoring the potential for a government shutdown as current spending laws are set to expire on September 30th.
On the data front, the Conference Board consumer confidence, new home sales and housing prices will be in the spotlight.
So far on the month, the Dow Jones is down about 2.1%, the S&P 500 lost nearly 3.8% and the Nasdaq sank over 5%.
Source: Trading Economics
Bonds
The yield on the US 10-year Treasury note rose above 4.5%, topping October 2007 highs.
Bets increased the borrowing cost would remain higher for longer and investors started to worry about a potential shutdown of the US government.
A strong labour market and rising crude oil prices may keep inflation elevated for longer increasing the possibility of another rate hike by the Fed.
Adding to woes, the US national debt passed $33 trillion last week and the October 1st deadline is looming over the 2024 budget deal.
This week, traders will be scrutinizing comments from several Fed officials for further clues on what the Fed will do in November and December.
On the data front, PCE inflation which is the Fed’s preferred inflation gauge, is also due Friday.
Source: CNBC
Overnight Headlines
Asian Markets
Stocks lower after more rate hike fears.
In Japan, the Nikkei 225 fell 1.11% to close at 32,315, erasing gains from the previous session, with nearly all sectors participating in the decline.
Those losses came despite a positive session on Wall Street overnight, as investors continued to fret about hawkish signals from the US Federal Reserve, surging Treasury yields and higher oil prices.
Meanwhile, the Bank of Japan reiterated its commitment to ultra-easy monetary policy, pushing back against speculations that it would start hinting at a possible end to negative interest rates.
Technology stocks led the decline, with notable losses from Tokyo Electron (-3.7%).
Source: Reuters
Energy
Oil prices decline on the back of rate hike fears and higher yields.
Brent crude futures below $93/bl as concerns that major central banks would keep interest rates higher-for-longer gripped commodity markets.
The Fed held its benchmark rate steady at its September policy meeting, but signalled another rate hike this year and fewer rate cuts in 2024.
The ECB and BOE also indicated that they would hold rates steady at restrictive levels for some time.
BUT, Brent has rallied more than 20% since the end of June as OPEC+ majors Saudi Arabia and Russia extended supply cuts through the end of the year.
The news stoking fears of larger market deficits in the fourth quarter.
Additionally, Russia recently issued a temporary ban on fuel exports to most countries in order to stabilize its domestic market.
All of this while US oil production continued to decline.
Source: GULF news
Metals
Precious metals steady.
Gold slid below $1,920/oz, as investors fretted about a hawkish Fed and central banks.
Also, the strengthened dollar and higher bond yields dented the metal’s appeal.
In its latest meeting, the US central bank left interest rates unchanged as widely anticipated, but signalled another rate increase before the end of the year and fewer rate cuts in 2024.
Meanwhile, in Europe the tightening cycle has likely come to an end.
Still, several ECB members highlighted the necessity to hold rates high to meet inflation targets.
Market focus now shifts towards the PCE price index, the Fed’s preferred inflation gauge, scheduled for a release on Sept. 29.
Source: KITCO
Currencies
Dollar scaling 10 month highs.
The US dollar held around 106 on Tuesday, hovering at its strongest levels in ten months and tracking US Treasury yields higher.
The Federal Reserve offered a hawkish outlook on monetary policy due to persistently high inflation.
The US central bank kept interest rates unchanged at its September policy meeting, but signalled another rate hike before the end of the year and fewer rate cuts than previously indicated next year.
Investors now look ahead to US consumer confidence and home sales data on Tuesday for more clues on the economy.
The euro dropped below the $1.0600 mark for the first time since mid-March, as there are indications that the ECB might halt its interest rate hikes.
Investors do not anticipate any further rate increases this year and are even considering a slight possibility of a rate cut by next June, with a rate cut being nearly fully priced in by July.
Source: Forexlive