The ZAR weakened in early trading as investors once again flocked to the Dollar ahead of tomorrow’s US CPI report.
The Rand weakened to 18.4200 as investors pared bets against a weaker Dollar ahead of tomorrow’s US inflation report.
- Friday’s stronger than expected jobs report, causing a stir as investors worry that the spike in wage inflation could see a higher than expected inflation print.
- The Dollar rebounding against all major currencies with the biggest jumps against the Euro and the ZAR also declining.
- The local unit at 18.4100 at the time of writing.
- On Monday inflation expectations declined as Americans expect a drop in the annual CPI rate.
- Expectations for the one-year horizon in the United States fell to 4.4 % in April 2023 from the previous month’s 4.7 %.
- This decrease was attributed to a softer perceived increase in costs for both college education. source: Federal Reserve Bank of New York
- Expectations falling as consumers continue to battle high interest rates and a slowing economy.
NB: Tomorrow’s CPI however the key data point.
- A lower print would be the final nail in the coffin for the Fed’s hiking cycle and we could expect a RETURN TO RISK ASSETS.
- Likewise, a higher than expected print would likely lead to a sell off in Risk ( and the ZAR), as markets would likely reprice for another Fed rate hike in June.
- Markets are priced for a rise of 5% (unchanged).
- DOLLAR 101.55 +0.17%
- EURUSD 1.0975 – 0.26%
- SP500 4130 -0.18%
- US10YT 3.49%
Data This week
- 14h30 : US CPI (INFLATION) YOY 5% EXPECTED VS 5% EXPECTED
- 14h30 : US CORE CPI (INFLATION) YOY 5.5% EXPECTED VS 5.6% EXPECTED
- 14h30 : US CORE CPI (INFLATION) YOY 0.4% EXPECTED VS 0.4% EXPECTED
- 11h30 : SA MINING PRODUCTION -4.3% MOM VS -4.9% PREVIOUS
- 11h30 : SA MINING PRODUCTION -7.3% YOY VS -5% PREVIOUS
- 11h30 : SA MANUFACTURING PRODUCTION -0.9% MOM VS -1.3% PREVIOUS
- 11h30 : SA MANUFACTURING PRODUCTION -5.8% YOY VS -5.2% PREVIOUS
- 13H00 : UK BOE RATE DECISION 4.5% VS 4.25% PREVIOUS (+25 BPS)
- 14H30 : US PPI 2.5% EXPECTED VS 2.7% PREVIOUS
- 08H00 : UK GDP 0.2% EXPECTED VS 0.6% PREVIOUS
- 16H00 : US MICHIGAN CONSUMER SENTIMENT 63 VS 63.5 PREVIOUS
Market Movement Today:
- The Rand weakening in early European trading ahead of tomorrow’s CPI release.
- Risk assets on the defensive across the board with Dollar demand driving currencies lower.
- The ZAR, Euro, Yen and Gold all falling victim to the Dollar spike.
- Dollars yields also moderately higher as investors happy to adopt a “wait and see” approach.
- The market moves allowing interbank traders to comfortably collect stops on both sides of the Monday range
- 18.4200- 18.2700
- The decline or even (stalling in rally) of US rates will continue to attract investor demand.
- The Dollar gaining in early trading after it fell below 101. We expect this trend to be short lived.
- DOLLAR 101.55 +0.17%
- EURUSD 1.0975 – 0.26%
- SP500 4130 -0.18%
- US10YT 3.49%
- Globally the story continues to be the FED and rates .
- We continue to remind the readers that;
- Any pause or cut will strongly support risk assets as the “ risk off trade – illustrated by the rise of the Dollar remains strongly “stretched”.
- THIS WILL BE ZAR SUPPORTIVE.
- As we head into tomorrow, US CPI, we are seeing some profit taking and ZAR weakness.
- This all ahead of the data print
- Trade : TRADE SELL USDZAR ON RALLIES .
- USDZAR : Expect a range 18.1800-18.4500
- Importers : 18.2700-18.1800
- Exporters : 18.3600-18.4500
- EURZAR : Expect a range of 20.0100-20.2800
- Importers : 20.1000-20.0100
- Exporters : 20.1900-20.2800
- GBPZAR : Expect a range of 22.9600-23.2600
- Importers : 23.0600-22.9600
- Exporters : 23.1600-23.2600
- USDZAR : 18.3400
- EURZAR : 20.1600
- GBPZAR : 23.1400
- SA to spend R146.7m to protect Eskom’s power plants
- Former Eskom CEO, Andre de Ruyter, estimated in February that about R12bn is stolen from the utility every year.
- The SA government plans to spend the amount over six months to protect state-owned electricity utility Eskom’s power stations, according to parliament.
- President Cyril Ramaphosa gave authorisation for 880 members of the South African Defence Force to help the police protect Eskom’s assets until mid October.
- SA’s inclusion on a global watchdog’s dirty-money watchlist is unlikely to have an immediate impact on its credit ratings, according to Fundi Tshazibana, a deputy central bank governor.
- The Paris-based Financial Action Task Force put South Africa on its so-called gray list in February.
- The agency citing shortcomings in tackling illicit financial flows and terrorism financing, and gave it until January 31, 2025 to address the deficiencies.
- Among the measures it must take is to step up corruption investigations and prosecutions, and ensure the authorities have timeous access to accurate and up-to-date beneficial ownership information.
- “The reason why the ratings agencies are saying that they’re not going to yet look at it negatively is that the nature of gray listing is that you are under enhanced monitoring” so remedial action can be taken.
- “It only becomes a problem if you’re missing your deadline because it’s demonstrating that you’re not serious” about following through, she said.
- Pravin Gordhan to lodge ‘urgent appeal’ against load shedding exemption ruling
- A high court last week ruled that government spare schools, police stations and healthcare facilities of load shedding within 60 days.
- Public Enterprises Minister Pravin Gordhan plans to appeal the decision.
- Economists say it will be fiscally and practically impossible for government to prevent load shedding for these facilities within 60 days.
- The North Gauteng High Court in Pretoria made the ruling to exempt these facilities of load shedding last week Friday.
- The application was originally lodged by the UDM, IFP, Action SA, the NUM and 15 others.
- They sought for hospitals and clinics, 23 000 public schools and police stations to be exempt from load shedding. NEWS 24
On Monday, the Dow fell 0.17%, while the S&P 500 and Nasdaq Composite gained 0.05% and 0.18%, respectively.
- US stock futures were little changed on Tuesday as investors cautiously awaited key inflation reports this week.
- The data that could guide the outlook for the economy and monetary policy.
- Futures contracts tied to the three major indexes drifted flat to slightly negative.
- Investors now look ahead to consumer inflation data on Wednesday and producer inflation data on Thursday.
- Meanwhile, companies slated to report earnings on Tuesday include Airbnb, Rivian and Fox Corp.
- The US 10-year yield rose above 3.50% as investors look ahead to the US inflation report on Wednesday.
- Last week’s payrolls report for April showed a larger-than-expected job gain and rising wage inflation.
- Traders indicating the data, has tempered fears of a recession and made it more difficult for the Federal Reserve to justify cutting interest rates.
- But, investors experienced temporary relief from the regional banking turmoil, but they will be closely watching the release of the Loan Officer Survey for clues on how the recent turmoil has affected lending.
- DOW -55 to 33,618
- SP500 +1.87 to 4,138
- NASDAQ flat to 12,256
image: Trading economics
The US Dollar
- The US dollar rallied above 101.5 on Tuesday, rising for the second straight session as investors looked ahead to the key US CPI report this week.
- The data could directly influence the Federal Reserve’s next interest rate decision.
- Data released Monday also showed that credit conditions for US businesses and households continued to tighten at the start of the year,
- but it was likely caused by the Fed’s aggressive rate hikes rather than the recent banking turmoil.
- Meanwhile, the 12-month inflation outlook for the US declined to 4.4% in April from 4.7% in March.
- Last week, the Fed delivered a widely expected 25 basis point rate hike but opened the door for a possible end to its aggressive tightening cycle.
- Investors now look ahead to US consumer inflation data on Wednesday and producer inflation data on Thursday to guide the monetary policy outlook. Fx news
Asian markets higher after news of China’s re-opening and trade data. Beijing reporting strong trade data.
- In Japan, the Nikkei 225 rose 0.4% to around 29,080, recouping losses from the previous session, with nearly all sectors participating in the rally.
- Still, investors remain cautious amid heightened economic uncertainties and the possibility of a global recession.
- Resource-related stocks led the charge on firmer commodity prices. Reuters
- The re-opening of China allowed for China’s trade surplus to surged to USD 90.21 billion in April 2023 from USD 49.47 billion in the same period a year earlier, easily beating market forecasts of USD 71.6 billion.
- Exports rose by 8.5% yoy, the second straight month of increase, above market consensus of an 8% growth, while imports unexpectedly fell by 7.9% amid weakening domestic demand.
- Meanwhile, the politically sensitive trade surplus with the United States widened to USD 29.68 billion in April from USD 27.6 billion in March. Reuters
- US WTI crude declined below $73 /bl on Tuesday, giving back some gains from the previous session.
- Investors turn cautious ahead of key US inflation reports that could influence the Federal Reserve’s next interest rate decision.
- Meanwhile, the US oil benchmark gained more than 6% over the past two sessions as fears of a recession in the US eased and the supply outlook remained tight.
- Stronger-than-expected US jobs and wage growth data suggested that the US economy remains resilient in the face of high inflation and rising interest rates.
- A round of voluntary cuts by some members of OPEC+ also begins this month, tightening the global market. Gulf energy news
- Bullion steadied above $2,020/oz on Tuesday, holding its ground as investors braced for key US inflation reports this week that could influence the Federal Reserve’s next interest rate decision.
- US consumer inflation data will be released on Wednesday while producer inflation data will be released on Thursday.
- Last week, Gold reached near-record highs on dovish hints from the Fed, as well as heightened economic uncertainties and renewed concerns over the banking sector in the US.
- However, gold prices pulled back as US recession fears eased, with analysts suggesting that recent economic concerns were overstated.
- Elsewhere, the Bank of England is expected to tighten policy further next week as the UK continues to grapple with elevated inflationary levels. Kitco metals report