The ZAR managed to achieve more gains on the back of a weaker Dollar as markets anticipate a Dovish Fed for 2023.
- The Rand traded to a strongest level of 16.8800 as traders continue to unwind long US Dollar bets.
- The recent data continues to support the view for a more dovish Fed in 2023.
- The US jobs market remains resilient but other sectors continues to signal an impending slowdown with;
- ISM Services activity showing a slowdown, Wages increases also slowing down as well as a cooling housing market.
- The FED has remain firm on its insistence of a higher neutral rate , but signs of “ peaked inflation” is not to be ignored.
- The bond market reflecting this view with the US 10YT yield falling hard to 3.52% as well as the Dollar index trading at 103.20
- However the Fed continued with its Hawkish Rhetoric with Atlanta Fed President Bostic once again on the speakers circuit.
- The Fed should raise interest rates above 5% by early in the Q2 of 2023 and then go on hold for “a long time.”
- “We are just going to have to hold our resolve,” he told the Atlanta Rotary Club on Monday.
- Bostic said the Fed was committed to tackling high inflation and this warrants raising interest rates into a 5% to 5.25% range to squeeze excess demand out of the economy.
- Asked by the moderator how long he saw rates above 5%, Bostic said: “Three words: a long time.” Source: Bloomberg
- This resulted in a reversal in the SP500 falling below 3900, after seeing early gains.
- Traders however remain focused on the Thursday US CPI report as it will most likely determine the path of rates and asset prices in 2023.
- This morning we are seeing Risk off in Asia on the back of Bostic’s comments.
Data this week
- 13H00 : SA MANUFACTURING PRODUCTION YOY 2.5% CONSENSUS VS 4.1% PREVIOUS
- 16H00 : US FED CHAIR JEROME POWELL SPEAKS
- 15H30 : US INFLATION RATE YOY EXPECTED AT 6.5% VS 7.1% PREVIOUS
- 15H30 : US CORE INFLATION RATE YOY EXPECTED AT 5.7% VS 6.0% PREVIOUS
- 17H00 : US CONSUMER SENTIMENT, WITH 60 EXPECTED VS 59.7 PREVIOUS
Market Movement Today :
- The Rand weakening in early trading after Hawkish comments from Fed governor Raphael Bostic.
- After reaching 16.8800 yesterday, the local unit reversing those gains.
- The FED continues to be hawkish and as such markets nervous ahead of Thursday’s CPI.
- But a lower print likely to be ZAR supportive.
- The 10YT yield remains lower at 3.52% and we expect this to continue as inflation subsides.
- However, A Risk is the markets are only pricing in 25 bps for the Fed in February and comments look like the Fed wants to do another 50.
- This morning expect some early ZAR weakness, on the back of the Fed comments and more profit taking on Dollar shorts.
- Like yesterday, a rally above 17.1000 towards 17.1500 will be good USDZAR selling opportunities.
- We continue to expect a stronger ZAR in 2023 on the back of a change in Fed policy,
- TRADE : SELL USDZAR ON RALLIES
- USDZAR : Expect a range 16.8000-17.0700
- Importers 16.8900-16.8000
- Exporters 16.9800-17.0700
- EURZAR : Expect a range of 18.0700-18.2800
- Importers 18.1400-18.0700
- Exporters 18.2100-18.2800
- GBPZAR : Expect a range of 20.4600-20.7900
- Importers 20.5700-20.4600
- Exporters 20.6800-20.7900
- USDZAR 16.9500
- EURZAR 18.1900
- GBPZAR 20.6300
- With chronic power cuts continuing to bedevil South Africans, Parliament wants answers from Eskom.
- Public Enterprises committee chairperson Khaya Magaxa said Eskom management will be called to Parliament even before it officially opens next month.
- The country experienced unprecedented load shedding last year, including over the holiday period.
- The elderly and people with comorbidities should wear masks as a preventative measure.
- Experts have warned, after South Africa registered its first case of the new COVID-19 Omicron subvariant.
- While most scientists said South Africa had largely achieved immunity to Omicron, health organisation Higher Health CEO Ramneek Ahluwalia urged vulnerable persons to exercise caution. EWN
- Joburg City Power said it was struggling to clear the backlog of outages outside of the scheduled power cuts.
- The utility said its technicians were attending to outages across Johannesburg following 17 incidents of cable theft and vandalism.
- The incidents occurred over the weekend, with eight reported in Roodeport alone.
- Spokesperson Isaac Mangena said acts of criminality posed a major challenge for the utility and leaves residents without power for longer periods.
- US stock futures were little changed in Asian trade on Tuesday after the major averages ended mixed during Monday’s regular session.
- After hawkish remarks from Federal Reserve officials brought down hopes that the central bank might dial back its aggressive monetary tightening.
- Futures contracts tied to the three major indexes all traded near breakeven.
- On Monday, the Dow and S&P 500 erased early gains to end 0.34% and 0.08% lower, respectively,
- This after the Fed’s Mary Daly said she expects rates to rise somewhere above 5% and
- Fed’s Raphael Bostic noted that policymakers should hike above 5% by early in the second quarter and hold rates there for a long time. Reuters
- The US 10-year yield, consolidated around 3.5%, as signs of an imminent recession in the US and prospects of a less aggressive monetary tightening from the Federal Reserve lifted appetite for government debt.
- Data from the Institute for Supply Management (ISM) showed a contraction in December in US manufacturing and services activity.
- While average hourly earnings slowed more than expected.
- Traders turning attention to the CPI report, due on Thursday, for hints on how much further the Federal Reserve may tighten financial conditions as it seeks to cool an overheating economy.
- Money markets are betting that the US central bank will hike rates by 25 basis points in February 2023.
- The Dow fell 112 to 33,517
- The SP500 fell 2.99 to 3892
- The Nasdaq gained 66 to 10,635
- The US dollar index held its recent decline to around 103.2, but found some support following comments from prominent US FED officials.
- On Tuesday, trading near its lowest levels in seven months as investors continued to assess the likely path of Federal Reserve interest rate hikes.
- The greenback lost nearly 2% in the past two sessions as softer-than-expected US data tempered expectations that the Fed will continue to hike rates aggressively.
- Atlanta Fed Bank President Raphael Bostic noted that policymakers should hike above 5% by early in the second quarter and hold them there for a long time.
- Investors now look ahead to the December inflation report on Thursday for further clues about the Fed’s next move, as well as Fed Chair Jerome Powell’s speech later on Tuesday. FX news
- In Japan, the Nikkei 225 climbed 0.78% to close at 26,175 rising for the third straight session, as Japanese technology stocks tracked their US peers higher.
- The tech-heavy Nasdaq gained for the second straight session on growing expectations that US inflation may be easing.
- But investors remain cautious as hawkish remarks from Federal Reserve officials countered hopes that the central bank might dial back its aggressive monetary tightening.
- Meanwhile, investors assessed data showing the core inflation rate in Tokyo exceeded forecasts in December, while household spending in Japan unexpectedly fell in November.
- Brent crude oil fell toward $79/bl on Tuesday, pausing a recent advance as hawkish remarks from US Federal Reserve officials outweighed hopes for a demand recovery in China.
- San Francisco Fed Bank President Mary Daly said she expects the central bank to raise rates to somewhere over 5%,
- while Atlanta Fed Bank President Raphael Bostic noted that policymakers should hike above 5% by early in the second quarter and hold them there for a long time.
- Meanwhile, Beijing recently provided refiners and traders with a generous import quota in its second allocation for 2023,
- as China gears up for growth after rapidly dismantling strict Covid restrictions, as reported by Bloomberg. Gulf Energy news
- Gold steadied around $1,870/oz on Tuesday, hovering near its strongest levels in eight months amid a general dollar weakness.
- The weaker-than-expected US data tempered expectations that the Federal Reserve will continue to raise interest rates aggressively.
- But slowing down Bullion’s advance was Atlanta Fed Bank President Raphael Bostic saying that policymakers should hike above 5% by early in the second quarter and hold them there for a long time.
- Investors now look ahead to the US inflation report on Thursday for further clues about the Fed’s next move, as well as Fed Chair Jerome Powell’s speech later on Tuesday. Kitco metals