The ZAR gained nearly 1.80% (or 30 cents), following the Fed’s widely anticipated 25 bps rate hike.
The Rand gained on the back of what is widely perceived as a FED PAUSE, following the FOMC’s latest 25 bps hike.
- Language were significantly different in the recent speech, with the Chairman omitting “ prior language that indicated more rate hikes ahead”.
- On Wednesday, the Fed raised the fed funds rate by 25bps to 5.25%, marking the 10th increase and bringing borrowing costs to the highest since September 2007.
- The central bank also signalled that it may be done with a tightening cycle but during the press conference, Fed Chair Powell said the inflation outlook doesn’t support rate cuts.
- Still, policymakers added that in determining the extent to which additional policy firming may be appropriate,
- they will take into account the cumulative tightening of monetary policy and the lags with which monetary policy affects economic activity and inflation.
- The Fed ‘s decision immediately weakened the Dollar across the board.
- The Euro, Pound, Yen and EMFX (like the ZAR), all gained vs the Buck.
- DOLLAR 101.12 / EURUSD 1.1075
- GOLD 2039
- SP500 4096 **
- US10YT 3.39
- ** The SP500 was lower as the Banking crises, continuous to worry investors as share prices in America’s largest regional banks continue to fall.
- This would likely result in increased levels of QE as the US Treasury tries to assure depositors that their funds are safe.
- NB: Increases in liquidity will be risk asset supportive.
- In addition, we still have the ECB rate decision(today), as well as the US Non-farm payrolls due on Friday.
Data This week
- 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 recovered sharply after the Fed delivered a much anticipated 25 bps and followed it up with a rather DOVISH statement.
- The local unit gaining nearly 2% as markets repriced for a weaker Dollar going forward.
- The local unit opening at 18.2300 vs 2 % weaker on Wednesday morning.
- Fed Chair Jerome Powell also mentioned the cumulative effects of monetary policy after the FED funds reached the highest since December 2007.
- The on-going banking crises also affecting rate policy as markets of the opinion that the Fed has gone too far and was “part cause “ of the on-going crises.
- However yields importantly drifted lower with the 10YT 3.36%, indicating a market open to cuts in H2.
- Coupled with lower CPI data we expect, rates to be on hold and this will be risk asset supportive.
- The Rand will benefit in this environment as traders widely expected another hike from the SARB, after SA CPI remained above the MPC’s 3-6 band.
- The large carry gap likely to be ZAR supportive as SA bonds continues to offer significant interest rate differential advantage.
- Against this backdrop, we expect the ZAR to advance and we anticipate a stronger local unit.
- Risk to this analysis – Friday’s NFP has a low expectancy (sub 200k), and a higher number might be Dollar supportive in the short term.
- But the FED’s action will ultimately determine the directional bias and we anticipate this be ZAR positive.
- Trade : TRADE SELL USDZAR ON RALLIES .
- USDZAR : Expect a range 18.0500-18.4400
- Importers : 18.1800-18.0500
- Exporters : 18.3100-18.4400
- EURZAR : Expect a range of 20.0400-20.4000
- Importers : 20.1600-20.0400
- Exporters : 20.2800-20.4000
- GBPZAR : Expect a range of 22.8500-22.6900
- Importers : 22.8500-22.6900
- Exporters : 23.0100-23.1700
- USDZAR : 18.2200
- EURZAR : 20.2100
- GBPZAR : 23.0000
- President Cyril Ramaphosa said he does not feel snubbed by the G7 summit.
- For the first time since his presidency began in 2018, Ramaphosa has not been invited to attend this year’s summit in Japan.
- According to The Presidency, the exclusion of Ramaphosa was due to changes made to the format of the summit – which will be held later this month.
- Over the last four years, Ramaphosa was invited to G7 summits in Canada, France, the United Kingdom and Germany.
- But presidential spokesperson Vincent Magwenya said Ramaphosa was not slighted by not being invited by Japan. EWN
- PRIME HYDRATION DRINK SELLS OUT AT SOME CHECKERS STORES
- In scenes reminiscent of Black Friday, people across the country woke up early to queue outside Checkers stores to be the first to buy the popular drink.
- The PRIME Hydration drink frenzy has hit the country, with some consumers reporting that it’s sold out at Checkers stores, where it’s being sold for a fraction of the initially reported price.
- Checkers is the country’s official retail partner of the drink, which went on sale last night for almost R40 each.
- The drink is owned by popular YouTube stars, KSI and Logan Paul.
- Power crises
- Pick n Pay misses dividend estimates as power costs increase
- A dividend of R1.85 a share was declared for the 12 months ended February 26.
- Pick n Pay missed dividend estimates as South Africa’s third-largest grocer incurred extra costs to keep the lights on at its stores amid nationwide power outages.
- That compared with a R1.92 median estimate of eight analysts surveyed by Bloomberg. Sales rose 8.9% to R106.6 billion. Moneyweb
- In regular trading on Wednesday, the Dow fell 0.8%, the S&P 500 dropped 0.7% and the Nasdaq Composite lost 0.46%.
- US stock futures edged lower on Thursday after the Federal Reserve hiked rates by another 25 basis points and market fears of a wider contagion in the regional banking sector resurfaced.
- Dow and S&P 500 futures fell 0.4%, while Nasdaq 100 futures shed 0.1%.
- In extended trading, PacWest sank more than 50% following reports that the California-based bank has been weighing strategic options, including a possible sale.
- Other regional banks also tumbled, including Western Alliance (-23%) and Zions Bancorporation (-10%).
- Fed Chair Jerome Powell said that it will take some time for inflation to come down, and that it would not be appropriate to cut rates under such a view.
- Investors now look ahead to initial jobless claims on Thursday and the monthly jobs report on Friday, as well as more corporate earnings reports. Cnbc
- US 10 Year Note Bond Yield was 3.37 percent on Thursday May 4, according to over-the-counter interbank yield quotes for this government bond maturity.
- Yields lower across the board on the Fed’s decision to hike by 25bps what many are seeing as its final hike in the current cycle.
- The FOMC raised the fed funds rate by 25bps to a 5.25% during its May meeting.
- It was the 10th increase and bringing borrowing costs to their highest level since September 2007.
- The decision came in line with market expectations.
- The central bank also signalled that it may be done with a tightening cycle by taking out from the statement sentence pointing to the need for additional policy firming.
- Policymakers added that they will take into account the cumulative tightening of monetary policy and the lags with which monetary policy affects economic activity.
- Officials also noted that although the U.S. banking system is sound and resilient. source: Federal Reserve
- DOW declined 270 to 33,414
- SP500 lower 28 to 4,090
- NASDAQ unchanged 12,025
image: Trading economics
The US Dollar
- The dollar weakened toward the 101 mark on Thursday, sliding for the third straight session.
- Traders selling the Buck after the Federal Reserve delivered a widely expected 25 basis point rate hike;
- BUT Crucially t removed language from its policy statement that it “anticipates” further rate increases would be needed.
- The dollar was also pressured as fears of a wider contagion in the US regional banking space returned following news that PacWest Bank has been weighing strategic options, including a possible sale.
- Investors now look ahead to initial jobless claims on Thursday and the monthly jobs report on Friday to guide the monetary policy outlook.
- Elsewhere, the European Central Bank is expected to tighten policy further as well on Thursday. FX news
- Asian markets higher across the region, after the FED’s decision to hike rates by 25bps.
- In Japan, the Nikkei 225 Index 0.12% to close at 29,158, with Japanese stocks struggling for direction amid weak cues from Wall Street overnight.
- The benchmark indexes reached multi-month highs in the previous day as the BOJ’s dovish stance spurred a selloff in the yen.
- The yen however recovering ater the FOMC indicated that rates might have peaked.
- Japanese stocks traded mixed on Tuesday. Japanese markets will be closed from May 3-5 for various holidays.
- In China, the Shanghai Composite fell 0.2% to around 3,315, with investors adopting a cautious stance after returning from a holiday-extended weekend.
- Mainland markets also took cues from a weak lead on Wall Street overnight after the US Federal Reserve raised interest rates further
- BUT said the inflation outlook does not support rate cuts.
- Domestically, a private survey showed that Chinese manufacturing activity unexpectedly contracted in April,
- confirming official data released over the weekend and raising concerns about the strength of the country’s economic recovery. Reuters
- US WTI crude futures fell below $68 per barrel on Thursday, bringing this week’s losses to more than 11% after the US Federal Reserve raised interest rates again.
- The Fed also indicated the inflation outlook does not support rate cuts, fuelling fears of a global economic slowdown and weaker energy demand.
- The US oil benchmark tumbled to as low as $63.6 a barrel in early Asian trade before recouping most of the decline.
- Russian crude exports also jumped back above 4 million barrels a day last week despite the country’s pledge to reduce production. Gulf Energy News
- Gold continued on its record run reaching $2,040 /oz and near its highest levels on record.
- Bullion supported as the US Federal Reserve delivered a widely expected 25 basis point rate hike BUT
- removed language from its policy statement that it “anticipates” further rate increases would be needed.
- The metal was also boosted by increased safe-haven demand amid rising risks of a global recession and fears of a wider contagion in the US regional banking space.
- Gold reached as high as $2,072 an ounce in early Asian trade before giving back most of the gains. Kitco metals