The ZAR weakened to reach 18.5000 in overnight trading as traders took cover ahead of today’s FOMC meeting.
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
- 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 .
- 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
- 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
- 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.
- 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
- USDZAR 18.3500
- EURZAR 20.1700
- GBPZAR 22.9500
- 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
- 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
- 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
- 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
- The Dow declined 367 to 33,684
- The SP500 declined 48 to 4,119
- The Nasdaq unchanged 12,080
image: Trading economics
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
- 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
- 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 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.