The ZAR gained 2.8% on the back of Risk on buying following a lower than expected US CPI data release.
The Rand benefitted spectacularly on the back of RISK ON bets returning to the market.
- News that the US CPI printed at 7.7% vs 8% expected and clearly below the June peak of 9.1% , had investors climbing into Risk assets across the board.
- Bonds yields plummeted with the US10YT falling to 3.82% from 4.10% before the data release .
- With Risk assets higher across the board ,markets comfortable with a 50 bps hike in December by the FED.
- And with Optimism returning , expect Risk assets to continue to rally and this will be ZAR supportive.
- Markets likely to continue with RISK ON as we head into the weekend ,
- Especially as we have a USA holiday, implying low liquidity conditions.
- NB: The sharp drop in US CPI a directional game changer as the Dollar likely to remain under pressure in the face of a “slow down in FED hiking “.
- The drop in yields like to ensure this continues.
- The US10YT at 3.82%
- The DXY at 107.50
Significant Market Data:
- 11h30 : SA mining, Gold and Manufacturing data
- Mining expected at -4.3% YOY vs -5.9% previous
- -4.5% % vs -4.05% expected
- Gold expected at -15.7% YOY vs -17.4% previous
- -12.4% vs -15.7% expected
- 15h30 : US INFLATION – CPI EXPECTED 8% VS 8.2% PREVIOUS
- Actual 7.7% YOY resulting in GLOBAL RISK ON.
- 15H30 : US CORE INFLATION – 6.5% EXPECTED VS 6.6% PREVIOUS
- Actual 6.3% vs 6.5% expected
- The ZAR opening stronger and testing the 17.3000 level after an opening at 178.3700.
- Dollar liquidation likely to continue given the spike in overnight risk assets.
- Asian markets tracking New York higher and this likely to continue as we have a US holiday today.
- The benchmark SP500 also trading at 3979 as market
- The drop in US CPI likely to cause a slowdown in Fed hikes with 50bps in December and possibly smaller hikes as we enter 2023.
- The Dollar to come under pressure in this environment and tis will be ZAR supportive.
- Trade : SELL USDZAR ON RALLIES
- USDZAR : Expect a range 17.1400-17.4400
- Importers 17.3400-17.1400
- Exporters 17.4400-17.5400
- EURZAR : Expect a range of 17.5200-17.9100
- Importers 17.6500-17.5200
- Exporters 17.7800-17.9100
- GBPZAR : Expect a range of 20.0700-20.5200
- Importers 20.2200-20.0700
- Exporters 20.3700-20.5200
- USDZAR 17.3700
- EURZAR 17.7400
- GBPZAR 20.3300
- South African Municipal Workers’ Union (Samwu) vowed that its workers won’t be protesting on the streets of Johannesburg on Friday.
- On Thursday, City of Johannesburg workers affiliated with Samwu caused major traffic when they held a demonstration on the M1 highway.
- In addition, Hundreds of workers represented by the Public Servants Association (PSA) marched to the National Treasury in Pretoria on Thursday.
- Workers protesting a 3% increase which they says is far below inflation above 6%, and in turn affecting. EWN
- A legal expert said controversial businessman Eric Wood can still retain his personal assets if he manages to settle an R111 million debt to the Transnet Pension Fund.
- The debt stems from transactions that Gupta-linked Regiments Capital made on behalf of the fund at a time when Wood was a director.
- Thursday the Johannesburg High Court ruled in favour of a provisional sequestration order application against Wood.
- It is alleged that while he was a director of Regiments Capital, Eric Wood benefited from a business relationship between the Transnet Fund and the financial services firm. Ewn
A report in the Mail and Gaurdian noted that loadshedding likely to continue in SA until 2027.
- Eskom’s troubles will not be resolved anytime soon: the utility has forecast that load-shedding will continue until 2027.
- Over the past 11 months, SA has experienced daily curbs on electricity supply.
- Eskom has faced chronic power supply constraints for the past 11 months with a record number of days, and consecutive days, of planned power cuts for 2022-23.
- Eskom has also failed to prevent incidents of sabotage at some of its power stations.
- A medium-term adequacy report Eskom released on 30 October paints a worrying picture of the problems the utility faces internally.
- The report aims “to assess over a five-year period the electricity supply shortfall risks that may arise based on foreseeable trends in demand and generation capacity in South Africa”. IOL
- US stock futures edged higher on Friday after the major averages posted their biggest one-day rallies in over two years.
- Softer-than-expected inflation data raised hopes that the Federal Reserve would slow the pace of interest rate hikes in upcoming meetings.
- Futures contracts tied to the three major indexes were all up at least 0.1%.
- In regular trading on Thursday, the Dow gained 3.7%, the S&P 500 jumped 5.54% and the Nasdaq Composite soared 7.35%, with all three benchmarks on track for a winning week.
- Those moves came as data showed that annual inflation eased to 7.7% in October, slowing for the fourth straight month and coming in below expectations of 8%.
- Core readings also surprised to the downside, leading markets to bet on a lower terminal rate that pressured the dollar and Treasury yields, while pushing technology and other growth stocks higher.
- The yield on the US 10-year Treasury note fell sharply to 3.8%, the lowest in one month, after fresh CPI data came cooler than expected.
- Consumer prices rose by 7.7% in October, slowing from the 8.2% in the prior month and below expectations of 8%.
- Core inflation also surprised to the downside at 6.3%, easing pressure on the Federal Reserve to hike rates for an extended period as signalled in its November meeting.
- Fed fund futures show that markets expect a 50bps rate hike by the Fed in December after four consecutive 75bps increases, while expectations for the terminal rate eased to 5%.
- In the meantime, investors continued to monitor results from mid-term elections, pointing to a split Senate and an advantage for the Republican party in the House of Representatives.
- The Dow gained 1,201 to 33,715
- The SP500 added 207 to 3,956
- The Nasdaq gained 760 to 10,353
- Asian markets higher across the board following the sharp rally on Wall Street.
- In Japan, the Nikkei 225 rallied 2.98% to close at 28,263 reaching their strongest levels in over eight weeks and taking cues from a strong lead on Wall Street.
- This as softer-than-expected US inflation data fuelled bets for a slower pace of monetary tightening from the Federal Reserve.
- Also, the Japanese yen strengthened past 142 per dollar, hovering near its strongest levels in two months after lower-than-expected CPI numbers bolstered hopes for peak inflation.
- The yen was also supported after Bank of Japan Governor Haruhiko Kuroda recently hinted at a possible adjustment in the yield curve control policy “if the achievement of our 2% inflation target comes into sight.”
- In Australia, the ASX 200 Index gained 2.79% to close at 7,158 on Friday taking cues from a strong lead on Wall Street.
- Stocks higher as softer-than-expected US inflation data fuelled bets for a slower pace of monetary tightening from the Federal Reserve.
- Technology stocks led the advance following strong gains in their US peers, miners, energy and financial firms also pushed the index higher.
- All other sectors advanced, pushing the benchmark index to its third consecutive weekly advance.
- The US dollar declined sharply to 107.50 and was remained on track to end the week more than 2% lower after lower than-expected US CPI report raised hopes for peak inflation and a slower pace of interest rates hikes from the Federal Reserve.
- The annual CPI rate in the US eased for a fourth straight month to 7.7% in October, rising at the slowest pace since January and coming in below expectations for a milder drop to 8%.
- Treasury yields also declined sharply with the benchmark 10-year US yield dropping toward 3.8% for the first time in over a month.
- Money markets are currently priced for a more moderate 50 basis point Fed rate hike in December after it delivered four consecutive 75 basis point increases.
- The dollar held its decline against other major currencies such as the euro, sterling and the YEN.
- The annual inflation rate in the US slowed for a 4th month to 7.7% in October, the lowest since January, and below forecasts of 8%.
- It compares with 8.2% in September.
- Energy cost increased 17.6%, below 19.8% in September, due to gasoline (17.5% vs 18.2%) and electricity (14.1% vs 15.5%).
- A slowdown was also seen in food (10.9% vs 11.2%) and used cars and trucks (2% vs 7.2%).
- On the other hand, prices for shelter (6.9% vs 6.6%) and fuel oil (68.5% vs 58.1%) increased faster.
- Compared to the previous month, the CPI rose 0.4%, below expectations of 0.6%. source: U.S. Bureau of Labour Statistics
- Crude oil
- Brent crude futures rose toward $94 per barrel on Friday but were still headed for a sharp weekly drop as a weakening demand outlook overshadowed fears of tighter supply.
- Data showing a larger-than-expected build in US crude inventories also weighed on the demand outlook.
- Meanwhile, softer-than-expected US inflation data fuelled bets that the Federal Reserve would tighten less aggressively in the coming months,
- Thus raising hopes that the US economy might be able to avoid a recession.
- Gold Bullion prices rallied strongly to breach $1,750 an ounce on Friday and were on track for another strong week as softer-than-expected US inflation data raised hopes for peak inflation and a slower pace of interest rates hikes from the Federal Reserve.
- The annual inflation rate in the US eased for a fourth straight month to 7.7% in October, rising at the slowest pace since January and coming in below expectations for a milder drop to 8%.
- Investors revised expectations for the terminal rate lower, while money markets are currently priced for a more moderate 50 basis point Fed rate hike in December after it delivered four consecutive 75 basis point increases.
- Gold is up about 4% so far this week after Thursday’s rally brought the metal to its strongest levels in over two months.