The ZAR rebounded and consolidated off its weakest levels reached on Monday during poor liquidity conditions.
The Rand recovered to reach 18.2400 after a wild stop hunt on Monday, saw the local unit trade above 18.5000.
- The local unit consolidating after Monday’s wild swings as algo’s had a field day. The price action was also evident in the SP500.
- The world’s largest equity futures contract enduring +/- 100 points swings in one session.
- Today however, we welcome the latest US CPI (inflation report).
- Markets are once again expecting a lower print, more evidence that the transmission / lagging effect;
- of the record pace of rate hikes are starting to manifest in the real economy.
- The recent banking crises, and the deposit withdrawals into money markets, also affecting the drop in the Money supply.
- Some context :
- Interest Rate hikes are used to reduce money supply and hence combat inflation.
- The recent banking crises – and the deposit withdrawals – had the same effect (as a rate hike) as bank lending dropped sharply during this period.
- Banks tried to replenish their liquidity situation , rather than lend out money to consumers (i.e. increase money supply).
- Recent data showing bank lending down nearly $100bn in 2 weeks , the largest fall since 2001.
- Thus – the bank crises had the same effect as a rate hike;
- Conclusion – it would be very hard for inflation to surprise to the upside under these circumstances.
- What does this mean for the Dollar?
- Well with the FED, effectively playing the 18th hole (Golf), in terms of rate hikes,
- We expect risk assets to benefit significantly, when the World’s largest Central bank hits the pause button;
- The rerating already happening with the SP500 above 4100, and even Bitcoin trading above $30,000/coin
- NB: This WILL BE ZAR SUPPORTIVE, as we move into the latter parts of Q2 and H2 of 2023.
Today we await the US CPI as well as US FOMC minutes.
- Us10YT : 3.43%
- DXY : 102.12
- Euro : 1.1.0920
- SP500 : 4,111
- USDZAR : 18.3500
Data This week
- At 13h00 : SA MANUFACTURING PRODUCTION EXPECTED -2.15% VS -3.7% PREVIOUS YOY
- DATA Disappointed with -5.2% actual vs the -2.25% (load shedding continues to hammer the sector).
- 14H30 : US INFLATION – CPI EXPECTED 5.2% YOY VS 6% PREVIOUS
- 14H30 : US INFLATION – CPI EXPECTED 0.2% MOM VS 0.4% PREVIOUS
- 14H30 : US CORE INFLATION – CORE CPI EXPECTED 5.6% YOY VS 5.5% PREVIOUS
- 20h00 : US FED FOMC MINUTES
- 08H00 : UK GDP MOM 0.1% EXPECTED VS 0.3% PREVIOUS
- 11H30 : SA MINING PRODUCTION +1.75% EXPECTED YOY VS -1.9% EXPECTED
- 14H30 : US PPI 3% EXPECTED YOY VS 4.6% PREVIOUS
- 14H30 : US RETAIL SALES 3.2% EXPECTED VS 5.4% PREVIOUS
Market Movement Today:
- The Rand recovered after Monday’s holiday sell-off.
- This morning the local unit trading at stronger levels (18.3500) but also under pressure ahead of today’s US CPI report.
- The ZAR tracking the EURUSD in early trading,
- The single currency also suffering at the hands of early profit taking at the start of the European open.
- NB: in the ABSENCE OF NEWS, market makers/order book runners looking to collect stops on both sides of the range.
- BUT ; We expect range trading as we head into the data release at 14h30.
- AND It is unlikely we see large range extensions ahead of the CPI report.
- Thus – range for the session (pre -14h30)
- In addition we have the FOMC MINUTES at 20h00.
- The minutes will be important and if the language “data dependent“ comes up, that will be a green light for risk assets.
- Provided the US CPI continues to trend lower.
- Markets once again flip flopping on a Fed hiking by 25 bps in May.
- Trade : SELL USDZAR on Rallies.
- Buy : 18.2500
- Sell : 18.50000
- USDZAR : Expect a range 18.2700-18.4500
- Importers : 18.3300-18.2700
- Exporters : 18.3900-18.4500
- EURZAR : Expect a range of 19.9800-20.1300
- Importers : 20.0300-19.9800
- Exporters : 20.0800-20.1300
- GBPZAR : Expect a range of 22.7500-22.9300
- Importers : 22.81000-22.7500
- Exporters : 22.8700-22.9300
- USDZAR : 18.3500
- EURZAR : 20.0500
- GBPZAR : 22.8300
- Top African National Congress (ANC) leaders were on Tuesday evening due to meet with the party’s former leader Thabo Mbeki.
- They were here to discuss current President Cyril Ramaphosa’s Phala Phala saga.
- The meeting was expected to take place at the ANC’s Luthuli House headquarters in Johannesburg.
- This follows a leaked letter by the former statesman to ANC Deputy President Paul Mashatile.
- Mbeki raised concerns over the ANC’s handling of the allegations surrounding the theft of millions at Ramaphosa’s Limpopo-based farm.
- However, top ANC leader’s calls on Mbeki to use his ‘wisdom’ to ‘counsel’, rather than criticise Ramaphosa
- Massive electricity outage still affecting large parts of Pretoria
- The collapse of several electricity pylons, partly because of vandalism, forced the closure of a section of the N4 highway over the long weekend.
- Significant parts of Pretoria east and north are still without electricity following the collapse of several electricity pylons during a storm on Sunday night. Moneyweb
- South Africa’s central bank Governor Lesetja Kganyago called for sweeping reforms to macroeconomic policies to boost economic growth, and lessen exchange rate volatility and sovereign risk.
- Proposed changes include structural reforms,
- deregulation of the nation’s transport and electricity sectors,
- lowering the inflation target and a shift back to predictable, transparent fiscal policy rules.
- Kganyago said in a speech at the Peterson Institute for International Economics in Washington Tuesday.
- Lowering the inflation target to 3%, the bottom of the current range, will be a “major benefit to fiscal policy” and economic growth, the governor said.
- It will also reduce the potential for an upward drift in the real exchange rate and cut loan-service costs for the country’s over-indebted public sector, he said. Moneyweb
- US stock futures held steady on Wednesday as investors cautiously awaited a key US inflation report.
- The CPI DATA could influence the trajectory of the Federal Reserve’s interest rate decision in May.
- Futures contracts tied to the three major indexes drifted flat to slightly positive.
- In regular trading on Tuesday, the Dow rose 0.29% and the S&P 500 ended flat, while the Nasdaq Composite fell 0.43%.
- Nine out of the 11 S&P sectors finished higher led to the upside by energy, while technology stocks underperformed the market.
- Last week’s jobs data pointed to a still-tight labour market, reinforcing bets of another 25 bps rate hike in May but easing some concerns that the US economy is near recession.
- Investors now await a slew of economic data and corporate results,
- Earnings include those from big US banks, for clues about the economy’s health and the likely future path of interest rates.
- The yield on the US 10-year moved higher above 3.41% to kick off the second week of April.
- Traders return from the Easter weekend and continue to assess the economic and the monetary policy outlook.
- Most investors now see the Fed delivering another 25bps increase in the fed funds rate in May.
- Citing the payrolls report, continues to point to a tight labour market, with the economy adding 236K jobs and the unemployment rate dropping to near record lows to 3.5%.
- Traders now await consumer and producer inflation releases and FOMC minutes for further clues on the Fed’s next move.
- On Friday, the ten-year yield jumped as much as 11bps after the NFP release while the two-year rose as much as 15bps to 3.97%.
- The Dow gained 98 points to 33,684
- The SP500 flat at 4,108
- The Nasdaq lower 52 points to 12,031
image: Trading economics
The US Dollar
- The US dollar held around 102.1 in subdued trade on Wednesday after losing some ground in the previous session.
- Investors cautiously awaited a key US inflation report that could influence the Federal Reserve’s interest rate decision in May.
- A slew of Fed speakers offered little clues on how much further US interest rates would rise,
- Earlier, New York Fed President John Williams saying that the central bank’s policy path will depend on incoming data.
- Money markets are now pricing in a much higher chance that the Fed will deliver another 25 basis point rate hike next month.
- Meanwhile, Philadelphia Fed Bank President Patrick Harker said Tuesday he feels that the end of rate hikes may be near.
- Money markets are pricing in a roughly 74% chance that the US central bank will raise rates by 25bps in May.
- BUT multiple rate cuts are also being priced in as early as July through to the end of the year. FX NEWS
Stock markets in the Asia-Pacific region were mostly higher on Wednesday.
- However, investors avoided taking a lot of new positions ahead of the US inflation and FOMC release later in the day which could provide further clues on the Fed’s next steps.
- in Japan, the Nikkei 225 Index climbed 0.6% to close at 28,083, with both benchmarks rising for the fourth straight session.
- But, the market caution capped gains ahead of a highly anticipated US inflation report that could influence the Federal Reserve’s interest rate decision in May.
- Recall, the new BOJ governor Kazuo Ueda said it was appropriate to maintain the bank’s ultra-loose monetary policy.
- His reasons : inflation has yet to hit 2%.- the comments boosting market sentiment.
- In China, the Shanghai Composite rose 0.4% to above 3,320. Stocks struggling for direction amid a lack of clear market signals.
- On Tuesday, data showed that China’s consumer inflation unexpectedly slowed in March, while producer inflation eased further to a 33-month low.
- The inflation figures suggested persistent demand weakness, but raised hopes for further policy easing. Reuters
- US WTI crude oil prices remained above $81/bl after jumping more than 2% in the previous session.
- Prices underpinned by signs of tighter global oil supplies and an industry report that pointed to another decline in US crude inventories at a key storage hub.
- Shipments from Russia have weakened after Moscow vowed to reduce production.
- Bloomberg reported. In the US, data from the American Petroleum Institute (API) showed that;
- US crude stockpiles at the nation’s key storage hub at Cushing, Oklahoma contracted by 1.4 million barrels last week.
- The US oil benchmark is also trading close to its highest levels in over two months,
- Price remained supported by a surprise announcement from OPEC+ that it will reduce output by 1.16 million barrels per day from May until the end of 2023. Bloomberg energy
- Gold prices rallied and once again reached $2,020/oz.
- Prices continuing its upside momentum for the second straight day, amid a pullback in the US dollar.
- Market participants put their focus on key US inflation data due later today for clues on the path of Federal Reserve interest rate hikes.
- Elsewhere, the IMF said Tuesday it expects global growth of 2.8% this year and 3% in 2024, slightly below the fund’s estimates in January.
- The fund added that the pressures in the banking sector have dissipated in recent weeks, but they have made the overall economic picture worse.
- Lower rates will boost the appeal of Gold. Kitco metals report