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Morning NOTE

11 January 2023


The ZAR consolidated around the R17/$ handle ahead of tomorrow’s US CPI report.


The Rand managed to withstand early Dollar buying to once again consolidated around the 17 handle.

  • The local unit losing ground in late Monday trading, on the back of hawkish comments by various Fed governors.
    • The FOMC members standing firm in their belief that a neutral rate is above 5% and that rates will remain there for a long time.
    • Risk assets however rebounding with the ZAR recovering after touching 17.1300.
      • The SP500 also trading higher.
    • It is worth noting that the comments of “rates will remain high for a long time”,  are directly in conflict with previous statements that read;
      • …“we will be data driven” .
  • AND …
    • The data are showing to a slowdown, with Wages growth declining, Housing starts lower and most recently ISM services also lower.
      • Throw in the FED preferred inflation gauge of PCE (personal consumption expenditure), also lower !
  • THEN  
    • ADD a dovish inflation report tomorrow then the comment of  “ rates to remain high for long”, appears out of context.
  • And this is what the Bond market reflects with the US 10YT at 3.59% reflecting this consensus that inflation have peaked.

Data this week

  • Yesterday at a conference in Stockholm Sweden, Fed Chair Jerome Powell stopped short of commenting on the direction of future monetary policy,
  • However he did say ;
    • “Price stability is the bedrock of a healthy economy and provides the public with immeasurable benefits over time.
      • He added, restoring price stability when inflation is high can require measures that are not popular in the short term,
      • As the Fed increases interest rates to slow the economy” .
    • Powell’s comments focused on central banks’ independence and were short of details on the coming interest-rate decisions. Bloomberg





Market Movement Today :

  • The Rand consolidated ahead of tomorrow’s key US CPI report.
    • In the face of ongoing threats from FED board members and more hawkish rhetoric, Risk assets have traded stronger.
  • Markets appear to turn their attention to the data rather than policy threats from the FED.
    • Recent data have all shown for a slowdown in price pressures and we likely to see this again.
    • The ZAR hovering around the 17 handle with potential to trade stronger if CPI prints lower.
  • This morning expect a bit of weakening in the ZAR ahead of the European open (10CAT), as traders book profits
    • And market makers hunt for some easy stops.
  • The rally above 17.1000-17.1500 yesterday provide some selling opportunities for exporters.
    • And this likely to be the same again today.
    • There after look for a stronger ZAR.
  • The trend however remains in favour of the ZAR, and we look for opportunities to SHORT USDZAR.


Expected Ranges:

  • USDZAR :  Expect a range 16.9200-17.1000
    • Importers 16.9800-16.9200
    • Exporters 17.0400-17.1000
  • EURZAR :  Expect a range of 18.1900-18.3400
    • Importers 18.2400-18.1900
    • Exporters 18.2900-18.3400
  • GBPZAR :  Expect a range of 20.6000-20.7500
    • Importers 20.6500-20.6000
    • Exporters 20.7000-20.7500


  • USDZAR 17.000
  • EURZAR 18.2700
  • GBPZAR 20.6800


  • STAGE 6 : Eskom has reduced power cuts to stage 4 on Wednesday morning after a brutal night of stage 6 power cuts which were implemented abruptly, with less than an hour’s notice.
    • The power utility said that the escalation of Tuesday night’s power cuts was due to the breakdown of seven generating units at several power stations.
    • The SOE added “Stage 6 load shedding nightly will be implemented up until further notice.
    • Stage 4 load shedding will be implemented during the day, starting at 5 in the morning until 4pm. Again, this will be until further notice.” EWN
  • The Johannesburg Stock Exchange (JSE) has banned former Steinhoff CEO Markus Jooste.
    • The ban includes him serving as a director on any company listed on the JSE for the next 20 years.
    • This is part of the JSE’s public censure against Jooste, who was at the centre of the country’s biggest accounting fraud scandal.
    • The JSE has also fined Jooste R15 million for violations of the listing requirements and submitting false financial statements. Business day live
  • Following the discovery of the new covid-19 strain in SA,
    • Health Minister Joe Phaahla said that the MAC on COVID-19 vaccines, would soon announce when more people could line up for their booster shots.
    • While most scientists said South Africa had largely achieved immunity to Omicron,
      • health organisation urged vulnerable persons to exercise caution after SA registered its first case of the new COVID-19 Omicron subvariant. EWN


  • US stock futures were little changed on Wednesday as investors cautiously awaited US inflation data on Thursday.
    • The CPI likely to provide further clues on the Federal Reserve’s next move.
  • This morning Futures contracts tied to the three major indexes were all trading near breakeven.
    • On Tuesday, the Dow rose 0.56%, the S&P 500 gained 0.7% and the Nasdaq Composite jumped 1.01%.
    • This marks that all three benchmarks with a positive start to the year so far.
    • Ten out of 11 S&P sectors finished higher on Tuesday, as investors bet that the upcoming CPI report will show further easing.
    • China’s reopening which bolsters the outlook for the global economy also continued to aid market sentiment.


  • The US 10-year Treasury yield, moved back toward the 3.6% mark,
    • After  hawkish remarks from Fed policymakers once again dashed for an imminent policy pivot.
      • San Francisco Fed president Mary Daly noted that she expects interest rates to rise beyond 5% in 2023.
      • Her Atlanta counterpart Raphael Bostic echoed a similar view .
    • However, investors are not blindly buying this tightening narrative,
      • with speculation about a recession prompting bets that the Federal Reserve will eventually cut rates later this year.
      • Data from the Institute for Supply Management showed a contraction in December in US manufacturing and services activity.
      • At the same time, the Labour Department’s closely watched employment report showed that nonfarm payrolls grew by 223K, the least since December 2020,
        • and average hourly earnings slowed more than expected.


  • The Dow added 186 to 33,704
  • The Sp500 added 27 to 3,919
  • The Nasdaq  gained106 to 10,742


  • The US  dollar remained above 103 as investors look ahead to the US CPI report due tomorrow.
    • Traders keen to see if CPI continues to trend lower.
    • After Powell’s comments, another Fed Governor Michelle Bowman weighed in, saying the Fed has more work to do to curb inflation,
      • Adding that more rate increases are needed.
    • Meanwhile, the dollar index remains close to its lowest levels in seven months on growing expectations that US inflation will continue to ease.
    • In addition, the renewed appetite for risk all adding to a rally in risk assets, adding more pressure on the US dollar. FX News
  • Asian markets on Wednesday, tracking gains on Wall Street overnight as investors bet that US inflation will ease further.
    • This after Fed chair, Jerome  Powell avoided making comments on the outlook for monetary policy in a recent speech.
    • China’s reopening from Covid curbs which bolsters the economic outlook also continued to aid market sentiment.
    • Shares in Australia, Japan, Hong Kong and China all advanced.
  • In Japan, the Nikkei 225 jumped 1.03% to close at 26,446, tracking Wall Street higher amid growing expectations that US inflation will show further easing.
    • Investors also assessed data showing foreign reserves in Japan increased for the second straight month in December.
    • Technology stocks extended their recent outperformance, 


  • Brent crude oil fell below $80 per barrel on Wednesday, after data from the American Petroleum Institute (API) showed ,
    • that US crude inventories jumped by a hefty 14.9 million barrels last week, defying expectations for a 2.4 million barrel drop.
  • Investors also fretted about tightening financial conditions that could tip the global economy into recession, hurting energy demand.
    • JPMorgan Chase CEO Jamie Dimon said US rates may have to move higher than 5%, in order to bring inflation within target.
    • Meanwhile, an improving demand outlook in China continued to buy oil prices.
    • China, the world’s top crude importer quickly dismantled strict Covid restrictions and made surprise policy U-turns in quest for growth. Gulf energy News
  • Gold traded around $1,880/oz near its strongest levels in 8 months as investors awaited key US inflation data.
    • The data that could provide fresh clues on the Federal Reserve’s tightening path.
      • Jerome Powell also avoided making comments on the outlook for monetary policy in a speech on Tuesday,
        • but he said that “restoring price stability when inflation is high, can require measures that are not popular in the short term as we raise interest rates to slow the economy.”
    •    Moreover, Fed Governor Michelle Bowman said the central bank has more work to do to curb inflation,
      • noting that more rate increases are needed.
  • Gold remains  highly sensitive to the rates outlook as higher interest rates raise the opportunity cost of holding non-yielding bullion. Kitco metals report

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