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GOOD MORNING
SONA and the FED, dominating recent ZAR price action, as markets continue to worry about higher US interest rates.
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SUMMARY
- The Rand lost ground to trade above 17.8000 after reaching an intraday high of 17.5900.
- After trading higher for most of the session; stocks in New York reversed as investors once again fretted about a continuation of aggressive Fed polices.
- The SP500, at one stage firmly in black, reversing sharply to post a session decline of nearly 1%.
- The price action providing support to the US dollar at the expense of Risk assets and the EMFX complex.
- Gold also losing ground and falling to $`1855/oz , below the $1900/oz mark
- , indicating that Dollar gains were broad based after the US 10YT yields rose to 3.66%.
- Risk assets, remain on the defensive on the back of FED speakers who continue to push for higher interest rates.
HOWEVER,
- On Tuesday next week, the USA once again reports INFLATION DATA.
- US CPI FOR January expected to drift lower to 6.3% vs 6.5% previous and
- US Core CPI also expected to decline to 5.4% from 5.7% earlier (YOY data).
- The data will either support or reject the FED’s rhetoric, especially after Jerome Powell, stated that the Disinflationary process had begun.
- Markets appearing to embrace the “fear trade” ahead of the data next week.
- Yesterday’s US Weekly jobless claims, also reported worse than expected.
- The data once again highlighting that the Friday NFP report should not be viewed in isolation.
- filing for first time unemployment rising to 196,000 for the week.
- On the data front SA’s mining data showed significant improvement with both general mining as well as Gold production reporting higher than excepted.
- However, load shedding continues to hamper SA manufacturing as the sector continues to show a decline.
- SONA : Ramaphosa announced declared a state of disaster , leaving opposition parties to object and wanting to know more details of the project.
- He also pledged to raise the social grant amount of people that analysts view as a negative for the SA fiscus and the Balance sheet of SA inc.
Data this week
FRIDAY
- 09H00 : UK GDP 0.4% EXPECTED YOY VS 1.9% PREVIOUS
- 17H00 : US MICHIGAN CONSUMER SENTIMENT 64.9 EXPECTED VS 64.9 PREVIOUS
- 19H00 : US FED GOVERNOR CHRIS WALLER SPEAKS .
Market Movement Today:
- The ZAR weakened after Fed officials once again spooked the markets with rate hike talks as well as nerves around the SA SONA.
- The local unit losing more than 20 cents after reaching an intraday high of 17.5900.
- This morning we opening at the top end of the weekly range.
- In the absence of more hawkish rhetoric, we could likely find “Dollar Longs”, book profits, allowing for the unit to retrace back into the weekly range.
- Technical resistance:
- The market has tested above 17.8000 on 3 occasions with Dollar Sellers appearing at this level.
- The 17.8000 level coincides with the 61.8% Fib retracement level, calculated from the move the move from 18.5000 to 16.7000.
- The ZAR pre-NPF traded at 17.1200 and currently hit 17.8200 (a loss of 4% for the week)
- We have no new data of significance and the probability of a move back to the middle of the range (17.5500) remains quite high.
- TRADE: SELL USDZAR on rallies
- NB: Around and above, 17.8000 to 18.0000 remains great value levels especially for exporters.
- Who are able to take advantage of both the ZAR Forward curve and Options skew.
Expected Ranges:
- USDZAR : Expect a range 17.5800-17.9400
- Importers 17.7000-17.5800
- Exporters 17.8200-17.8800
- EURZAR : Expect a range of 18.8400-19.2300
- Importers 18.9700-18.8400
- Exporters 19.1000-19.2300
- GBPZAR : Expect a range of 21.3200-21.6800
- Importers 21.4400-21.3200
- Exporters 21.5600-21.6800
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OPENING RATES
- USDZAR 17.7100
- EURZAR 19.0100
- GBPZAR 21.4100
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SOUTH AFRICA
NATIONAL STATE OF DISASTER
- President Cyril Ramaphosa declared a national state of disaster during his SONA speech in parliament.
- The president said it would allow government to provide practical measures to minimise the impact of load shedding on businesses,
- individuals and public infrastructure, analysts said more detail was needed.
- “The Minister of Cooperative Governance and Traditional Affairs has just gazetted the declaration of the State of Disaster, which will begin with immediate effect,”
- HOWEVER
- The DA , the country’s largest opposition party rejected the declaration of a state of disaster.
- DA whip stating, that the last time there was a state of disaster to deal with the COVID-19 pandemic,
- We saw essentially a looting frenzy because procurement processes were allowed to be subverted”. EWN
EFF REMOVED
- The EFF were removed from a joint sitting of Parliament and the National Council of Provinces, after disrupting attempts by the president to deliver the SONA
- The red berets attempted to prevent the president from delivering his speech with Speaker Nosiviwe Mapisa-Nqakula calling on security to intervene.
- EFF members attempted to step onto the platform on their way out. EWN
TOURISM DEAL
- Department of Tourism Minister Lindiwe Sisulu, when asked, at SONA, if the deal was a mistake, she emphatically said, “absolutely not”.
- She continued that tourism drives the economy, as is the case in many other countries and marketing is needed. News24
SOCIAL GRANTS
- With more than 25 million people dependent on some form of income support in South Africa, existing social grants will be increased.
- Rampahosa stating it would be elaborated on by Minister of Finance Enoch Godongwana later in the year.
- President Cyril Ramaphosa said, due to the rising cost of living, that the Social Relief of Distress (SRD) Grant would continue to be distributed. IOL
GLOBAL MARKETS
Stocks:
- On Thursday, the Dow fell 0.73%, the S&P 500 lost 0.88% and the Nasdaq dropped 1.02%.
- In additional analysts reporting that all 11 S&P sectors ended lower.
- Investors now await more Fed commentary, economic data and corporate earnings on Friday.
- US stock futures steady in early Friday trading, after Thursday saw the 2nd day of declines.
- Traders citing as the prospect of further rate hikes from the Fed in its fight against inflation weighed on sentiment.
- Futures contracts tied to the three major indexes drifted flat to slightly positive.
Bonds:
- The US 10-year yield traded lower and moved back below 3.6% as investors reassessed the Federal Reserve’s plans for rate hikes.
- A string of Fed policymakers reiterated that interest rates would need to keep rising to bring down inflation to its 2% target.
- BUT, Richmond Federal Reserve president Thomas Barkin was among the latest officials to acknowledge that the US economy is slowing allowing the central bank to move more deliberately.
- Investors now see the Fed raising the fed funds rate to 5%-5.25%, with the world’s most influential central bank delivering a 25 bps hike in March and May before pausing.
- Looking ahead, we await next week’s US INFLATION on Tuesday, that will once again drive price action.
Yesterday
- The Dow declined 249 to 33,699
- The SP00 fell 46 to 4,081
- The Nasdaq fell 120.94 to 11,789
:  image: Trading economics
OVERNIGHT HEADLINES
The US dollar
- The dollar index remained firmly above 103 investors look ahead to US inflation data next week.
- The data likely to provide for clues about the trajectory of Federal Reserve interest rate hikes.
- Investors also embraced hawkish signals from Fed officials this week,
- who reaffirmed their commitment to bring inflation down with further policy tightening.
- But, investors remained cautious about escalating risks of a recession and signs of cooling inflation.
- The US. Fed Chair Jerome Powell said earlier this week that the disinflationary process has started, but
- warned of more rate increases if the jobs market remains strong.
Asian Markets mixed with Japan rallying on a weaker Yen and the rest of the region trading lower.
- In Japan the Nikkei 225 rose 0.6% to 27,760, defying weak global sentiment as strong domestic corporate earnings and robust outlooks supported the Japanese market.
- Japan’s companies that all benefit from exports, all well bid after the Yen resumed its declined against the dollar.
- Companies that rallied on upbeat earnings reports and the Nikkei Index is on track to advance for the fifth straight week.
- In China, the Shanghai index declined, giving back some gains from the previous session.
- Markets all weighed down by weak global sentiment as investors fretted about the prospect of further policy tightening.
- Investors also digested data showing China’s inflation rate hit a three-month high of 2.1% in January, but below market expectations of 2.2%.
- Consumer and new energy stocks led the market lower. Reuters
- US WTI Crude oil traded near $78/bl on Friday and were set to gain about 6% this week.
- SUPPLY
- Prices supported by various supply disruptions as well as additional sanctions on Russian oil and optimism over a rebound in Chinese demand.
- Earlier this week, a crucial oil terminal in Turkey suspended operations due to the recent earthquake, while a major oil field in Norway unexpectedly shut down.
- The European ban on seaborne imports and price caps for Russian oil products also came into effect on Sunday.
- DEMAND
- China’s economy could be poised for a stronger-than-anticipated rebound that will boost demand for crude.
- But , slowing the advance were a hawkish Fed , that could drive the US into a recession and scupper demand . Gulf energy News
Gold
- Gold declined to trade below $1,860/oz and was set to decline for the second straight week.
- Bullion remaining under pressure due to hawkish signals from Fed officials who reiterated their commitment to bring down inflation with more rate increases.
- Officials remaining determined in their approach to get inflation down to 2%
- Investors now look ahead to more Fed commentary and US consumer sentiment data on Friday, as well as next week’s US inflation data.
- All likely to provide clues about the trajectory of Fed policy tightening.
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