Afternoon Note
27 September 2023
Support & Resistance Levels
Data This Week
Market Highlights
Market Close
South Africa
Global Markets
Overnight Headlines
ZAR continues to decline.
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
ZAR weakness continued with the unit declining to R19.18/$ in early trading.
The US Dollar rally across the board with Euro, Yen as well as EMFX all declining vs the Dollar.
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- Central bank comments, as well as inflationary data, all supportive of a stronger Greenback.
The rand losing nearly 15 cents or 0.7 % in early European trading.
Markets now waiting for the US session to see if the Risk off sentiment continues.
The dollar index remained above 106 on Tuesday, the strongest levels in ten months and tracking US Treasury yields higher.
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- The Federal Reserve offered a hawkish outlook on monetary policy due to persistently high inflation.
- Also, Minneapolis Fed President Neel Kashkari said there’s nearly a 50-50 chance that interest rates will need to move significantly higher to bring down inflation.
- Global yields continues to rise and with oil prices approaching $100/bl.
- Traders are once again worried about energy induced inflation and the 2nd round effects.
A sustained break of the range will likely see it move towards 19.4000.
NB: for now we ‘ve breached the upper end of the range.
Trade: BUY USDZAR on dips and go with break
Market Close
DOW
-388 to 33,618
SP500
-63 at 4,278
NASDAQ
-207 to 14,608
Overnight Trading
Image: Trading Economics
South Africa
ESKOM POLLUTION
Four of South African state utility Eskom’s 15 coal-fired power plants are breaching government emissions regulations as it pushes ageing facilities to their limits.
SA is facing its worst power crisis on record, with a persistent electricity shortfall necessitating daily scheduled rolling blackouts – known locally as load shedding.
Two senior Eskom officials and Electricity Minister Kgosientsho Ramokgopa told Reuters they were aware of the violations.
Last year it helped reverse a four-decade trend of declining emissions of so-called particulate matter – mainly ash and soot.
However, they said making the plants compliant would take time and could undermine efforts to address the power shortfall.
In the meantime, this leaves South Africa with a choice between keeping the lights on and protecting the health of its citizens.
The environment ministry did not respond to Reuters questions about the emissions violations.
US -SA Diplomacy
International Relations Minister Naledi Pandor told Parliament she is yet to decide on whether government will take action against US ambassador to South Africa Reuben Brigety.
The comments after his comments on the Lady R debacle.
As the DA heads to court over the Lady R investigation, Minister Naledi Pandor said she has not taken any decision yet on whether action is warranted against US Ambassador Reuben Brigety.
In May, Brigety unleashed a diplomatic storm when he alleged South Africa had been fuelling Russia’s war in Ukraine.
He claimed South Africa had loaded weapons on the Russian cargo ship when it docked at Simon’s Town naval base in December.
However, an independent investigation has found no evidence of this.
The final report on the investigation remains under wraps, with President Cyril Ramaphosa having only released an executive summary that dispels Brigety’s claims.
There have since been widespread calls for Brigety to be expelled.
Source: EWN
Global Markets
Stocks
Stock futures in the US were slightly higher on Wednesday, with contracts on the S&P 500 and the Nasdaq 100 adding nearly 0.4% and the Dow Jones rising about 90 points.
Treasury yields retreated, offering some support to Apple (0.3%), Microsoft (0.5%), Nvidia (0.4%) and Tesla (0.4%) were all up in premarket trading.
Amazon was also in the green in premarket hours (0.2%), attempting to rebound from a 4% slump the day before, after the US government and 17 states sued the company in a landmark monopoly case.
Meanwhile, traders will continue to follow negotiations to avoid the US government shutdown.
Yesterday, Senate leaders introduced a bipartisan bill to keep the government funded through November 17th, but there’s no guarantee the measure will pass in the House.
Source: Trading Economics
Bonds
The yield on the US 10-year Treasury note rose above 4.5%, topping October 2007 highs.
Traders increasing bets that borrowing costs would remain higher for longer and investors started to worry about a potential shutdown of the US government.
A strong jobs 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: Bloomberg
Overnight Headlines
Asian Markets
Stocks lower after more rate hike fears.
In Japan, the Nikkei 225 Index rose 0.18% to close at 32,372, reversing losses from earlier in the session.
Traders citing reports that Japanese PM Fumio Kishida instructed his cabinet to develop a new economic package by the end of October.
The idea was to alleviate the impact of inflation and support the economy through increased wages and investments.
Those gains came despite a sharp selloff on Wall Street overnight amid persistent concerns about higher for longer interest rates and heightened economic.
Source: Reuters
Energy
Oil prices decline on the back of rate hike fears and higher yields.
Brent crude futures strengthened above $95/bl on Wednesday, extending gains from the previous session as concerns about tightening global supply heading into winter gripped the market.
Brent prices have surged about 25% since the end of June as OPEC+ majors Saudi Arabia and Russia extended supply cuts through the year’s end.
Concerns about further drawdowns at the key Cushing, Oklahoma, storage hub in the US that could fall below minimum operating levels also kept markets on edge.
Meanwhile, industry data showed that US crude inventories increased by about 1.6 million barrels last week, defying expectations for a 300,000 barrel decline.
On the demand side, growing optimism that the US could engineer a soft landing and that a series of stimulus measures could bolster China’s economic recovery boosted the outlook.
Source: GULF news
Metals
Precious metals steady.
Gold below $1900/oz to reach $1893/oz in early trading.
Prices at one-month lows and facing constant pressure from a strong dollar and Treasury yields on the back of a higher-for-longer interest rate scenario.
Last week, the US Federal Reserve kept interest rates unchanged, but signalled another rate hike before the end of the year and fewer rate cuts than previously indicated next year.
Minneapolis Fed President Neel Kashkari also said on Tuesday there’s nearly a 50-50 chance that interest rates will need to move significantly higher to bring down inflation.
Investors now look ahead to the personal consumption price index in the US on Friday, which is the Fed’s preferred inflation gauge.
Source: KITCO
Currencies
Dollar rally continues.
The dollar extended gains for a fifth consecutive session to approach 106.5 on Wednesday.
It was the highest level since late-November, as traders grab with prospects that interest rates will remain elevated for a longer period.
At the same time, increasing oil prices raised concerns that the inflation rate could surge once again.
Last week, the Fed kept the fed funds rate steady but took a hawkish stance and signalled one more rate hike would still be necessary.
Subsequent comments from several Fed officials have reinforced the notion that the central bank will need to further increase interest rates.
Meanwhile, market participants bet both the ECB and the BoE are done with rate hikes due to growing signs of economic weakness in their respective economies.
Also, the Bank of Japan kept its ultra-easy monetary policy this month. The dollar scaled multi-month highs against the euro, sterling and the yen.
Source: Forexlive