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GOOD MORNING
The ZAR weakened to reach 18.5000 in overnight trading as traders took cover ahead of today’s FOMC meeting.
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SUMMARY
The Rand declined with other risk assets to trade weaker as traders remained nervous ahead of the US FOMC meeting.
- Markets remain nervous with the Fed widely expected to raise its funds rate by 25bps to finalize its 500bps tightening path.
- The SP500 recovered in late New York trading, after US yields declined.
- The fall in yields supporting risk assets in early Asian trading with the Euro, Pound and Yen recovering Vs the Dollar.
- The ZAR finding support gaining 10 cents at the open.
- Overall, markets makers likely to hunt stops on both sides of the range, taking advantage of investor angst as traders debate “what comes next”
- The focus will likely be on the press conference and the language Powell uses to indicate the way forward rates.
- A hawkish tone, will likely result in another sell-off in Risk and likewise a dovish pivot would be risk supportive.
- Thus, all eyes on the FED and the outcome will determine the next directional leg for the ZAR.
- NB: we also have the ECB rate decision, US ISM (services) as well as the US Non-farm payrolls due on Friday.
Data This week
Tuesday
- 16H00 US FACTORY ORDERS 1.1% EXPECTED VS -0.7% PREVIOUS
- New orders for manufactured goods in the US increased by 0.9% compared to the previous month in March 2023,
- It was lower than expected .
WEDNESDAY
- 14H15 US ADP EMPLOYMENT +150K EXPECTED VS +145K PREVIOUS
- 16H00 US ISM SERVICES PMI 51.8 EXPECTED VS 51.2 PREVIOUS
- 20H00 : US FED RATE DECISION +25 BPS EXPECTED – FED FUNDS 5.25% V PREVIOUS 5.00%
- 20H30 : US FED PRESS CONFERENCE – CHAIR JEROME POWELL
THURSDAY
- 09H15 SA S&P GLOBAL PMI 50.2 EXPECTED VS 49.7 PREVIOUS
- 14H15 : ECB RATE DECISION +25BPS EXPECTED 3.75 % VS 3.50% PREVIOUS
- 14H45 : ECB PRESSER
- 14H30 US INITIAL JOBLESS CLAIMS 240K VS 230K EXPECTED
FRIDAY
- 14H30 : US NON FARM PAYROLLS 180K EXPECTED VS 236K PREVIOUS
- 14H30 US EUNEMPLOYMENT RATE 3.6% EXPECTED VS 3.5% PREVIOUS
Market Movement Today:
- The Rand continued to weaken ahead of tonight’s all important FOMC meeting.
- Markets are expecting a 25 bps hike with the press conference after the decision of particular significance.
- Yesterday’s weaker than expected economic data, reducing the hawkish rhetoric as yields declined and the Dollar retreated in Asian trading.
- But traders remain nervous ahead of the decision that will bring the Fed hikes to 500bps.
- The Fed funds at 5.25% vs 0.25% when all of this started.
- Higher inflation, Regional Bank failures all victim’s to the Fed’s policy failures.
- Transitory inflation
- Continued hiking, even though inflation has cleared turned.
- BUT CPI continues to fall and this will result in a Fed pause (RISK POSITIVE).
- The focus however remains tonight’s FOMC meeting, with particular focus on the press conference afterwards.
- The language will be a key determinant for future moves of the Dollar and the ZAR.
- We expect risk off to be the “sentiment of choice” as we approach the meeting, with investors preferring to take money off the table ahead of the decision.
- The ZAR will likely be under pressure ahead of the meeting and we encourage importers to hedge any short term exposures.
- This morning the ZAR opening at 18.4300, and we expect range trading as market makers search for easy stops on both sides of the ranges.
- Trade : TRADE BUY USDZAR ON DIPS.
Expected Ranges:
- USDZAR : Expect a range 18.3400-18.5800
- Importers : 18.5000-18.5800
- Exporters : 18.4200-18.340
- EURZAR : Expect a range of 20.2100-20.4200
- Importers : 20.2800-20.2100
- Exporters : 20.3500-20.4200
- GBPZAR : Expect a range of 22.9100-23.1200
- Importers : 22.9800-22.9100
- Exporters : 23.0500-23.1200
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OPENING RATES
- USDZAR 18.3500
- EURZAR 20.1700
- GBPZAR 22.9500
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SOUTH AFRICA
- Minister Gwede Mantashe says that dealing with load shedding is not a matter of collecting votes.
- Mantashe also said that he supports the work of Electricity Minister Kgosientsho Ramokgopa, and Cabinet is united in ending load shedding.
- The minister also shared that his department will launch major procurement programmes for more renewable energy.
The Fuel price
- The wholesale diesel price will be lowered on Wednesday, but petrol is getting more expensive.
- Petrol (both 93 and 95 unleaded) will be hiked by 37c a litre, while diesel will be cut by 47.5c.
- International petrol prices are on the rise because of the beginning of the so-called driving season in the US. EWN
Cigarettes
- Law enforcement authorities have detained a truck that was ferrying illicit cigarettes worth some R20 million on Monday,
- after it was stopped in Bronkhorstspruit and the driver fled the scene.
- The cigarettes were brought through the Beitbridge border, where the consignment was falsely declared as tea leaves,
- the South African Revenue Service (Sars) said on Tuesday. News24
GLOBAL MARKETS
Stocks
- On Tuesday, the Dow fell 1.08%, the S&P 500 dropped 1.16% and the Nasdaq Composite tumbled 1.08%, with ten out of 11 S&P sectors finishing lower.
- The sharp market decline was led by a selloff in US regional banks following the collapse of First Republic Bank and subsequent takeover by JPMorgan, the second-largest bank failure in US history.
- US stock futures were little changed on Wednesday as investors cautiously awaited the Federal Reserve’s interest rate decision.
- Dow and S&P 500 futures were flat, while Nasdaq 100 futures drifted lower.
- In extended trading, Ford and Starbucks shares both declined even after beating market expectations for the top and bottom lines.
- Meanwhile, the Fed is widely expected to deliver another 25 basis point rate hike, while investors will focus on its guidance for the future rate path.
- Investors also look ahead to the latest ADP jobs and services PMI data on Wednesday, as well as more corporate earnings reports. CNBC
Bonds
- The yield on the US 10-year declined under the 3.45% level on Tuesday.
- The yield firmly below the one-month high of 3.6% touched on April 19th as weaker than expected labour market data pared concerns of an overly-hawkish Fed.
- The Fed is widely expected to raise its funds rate by 25bps to finalize its 500bps tightening path.
- Still, signs of resilient inflation amid softening in the labour market spurred conflicting expectations on the duration that the central bank will hold rates at a high level.
- Data from the JOLTS showed that job openings in the United States fell to a near two-year low in March.
- At the same time, fresh PMI data showed that inflation picked up during April, underscoring the stubbornness of price growth to higher borrowing costs. Reuters
Yesterday
- The Dow declined 367 to 33,684
- The SP500 declined 48 to 4,119
- The Nasdaq unchanged 12,080
 image: Trading economics
OVERNIGHT HEADLINES
The US Dollar
- The US dollar declined to 101.60, extending losses from the previous session as weaker-than-expected jobs data.
- Investors’ concerns over the debt ceiling and banking sector risks piled on fears that the US economy could be headed for a recession.
- Still, the Federal Reserve is widely expected to deliver another 25 basis point interest rate hike on Wednesday.
- But analysts remain divided on whether the central bank would keep borrowing costs elevated for the remainder of the year or start cutting rates in the second half.
- US job openings fell for a third straight month and layoffs increased to the highest in more than two years,
- suggesting employers are becoming more cautious amid heightened economic uncertainties. FX news
Asian markets
- Equity markets in the Asia-Pacific region fell on Wednesday as investors turn cautious ahead of the Fed’s monetary policy decision.
- Growing concerns about the health of the banking sector also weighed.
- The Hang Seng was the biggest loser, followed by the ASX 200 and the Kospi. Markets in Japan and China were closed for holidays.
- In Japan, the Nikkei 225 rose 0.12% to close at 29,158, with Japanese stocks struggling for direction amid weak cues from Wall Street overnight.
- The benchmark reached multi-month highs in the previous day as the BOJ’S dovish stance spurred a selloff in the yen.
- The Yen drop boosting the outlook for export-heavy Japanese industries and making Japanese assets more attractive to foreign investors.
- In Australia, the ASX 200 Index dropped 0.96% to close at 7,197 on Wednesday, hitting its lowest levels in a month a day after the RBA delivered a surprise 25 basis point interest rate hike.
- The RBA said further tightening may be required to ensure inflation returns to target in a reasonable timeframe.
- Investors also cautiously awaited the US Federal Reserve’s policy decision, where it is expected to raise interest rates further despite growing recession fears. Reuters
Crude oil
- US WTI crude oil held below $72 /bl Wednesday, hovering at its lowest levels in five weeks amid fears that impending interest rate hikes and growing recessionary risks could weigh on global energy demand.
- The FED and the ECB are expected to tighten policy further this week, while the Reserve Bank of Australia unexpectedly raised its cash rate on Tuesday.
- Weaker-than-expected US jobs data and a surprise contraction in Chinese manufacturing activity also raised concerns about the economic health of the two largest oil consumers in the world.
- On the supply side, Bloomberg reported that Iranian Oil Minister Javad Owji said the country has increased output more than 3 million barrels a day, providing additional supplies to the market. Gulf Energy
Gold
- Gold prices remained around $2,015/oz on Wednesday after jumping nearly 2% in the previous session.
- Investors remain nervous as growing recession fears and persistent concerns over the banking sector in the US weighed on the dollar, while lifting other safe-haven assets.
- Meanwhile, investors remain cautious ahead of the US Federal Reserve’s policy decision, where it is expected to deliver another 25 basis point rate hike.
- Data from the JOLTS showed that job openings in the US fell to a near two-year low during March,
- adding to recent evidence that higher borrowing costs have softened the labour market.
- Investors also fretted about the collapse of First Republic Bank and its subsequent takeover by JPMorgan, the second-largest bank failure in US history.
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