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GOOD MORNING
The ZAR RUN continued as markets continue to bet for no rate hikes by the Fed on Wednesday.
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SUMMARY
The ZAR continued on its remarkable run to trade at 18.7000, ahead of Wednesday key US FOMC rate decision .
- The local unit gaining as much as 6% as traders turned bullish on the local unit.
- The move however,
- Placing the USDZAR in oversold territory with major support trendline in play at 18.6000.
- On the monetary front,
- The market also changing tune and now expecting zero rate hike by the FED on Wednesday.
- Inflation data tomorrow likely to provide final clues as to the FOMC’S decision.
- SA bond yields also lower as foreign investor demand for local high yield continued.
- The SA 10YGB trading at 10.75% vs 11.25% (23/5/23)
- The ZAR out performing vs the major currencies especially as the euro and pound also gained.
- Overall the Dollar on the back foot but finding some support in earlier trading .
- The dollar index steadied above 103.5 on Monday.
- Traders geared up for US inflation data and the Federal Reserve’s interest rate decision this week.
Markets this morning
- USDZAR 18.7000
- DOLLAR 103.500
- EURUSD 1.0750
- SP500 4,287
- GOLD 1960
- US10YT 3.76
The week ahead
- Event risk dominated by the US FED’s FOMC interest rate decision,
- as well as the release of the inflation rate,
- retail sales, and the Michigan consumer sentiment.
- Investors will closely follow the ECB and BOJ monetary policy meetings
Data This week
MONDAY
- 17h00 : US CONSUMER INFLATION EXPECTATIONS 4.2% F/CAST VS 4.4% PREVIOUS
TUESDAY
- 08H00 : GERMAN CPI 6.1% EXPECTED VS 7.2% PREVIOUS
- 08H0 : UK UNEMPLOYMENT 4% EXPECTED VS 3.9% PREVIOUS
- 11H30 : SA GOLD PRODUCTION 16% F/CAST VS 21.6% PREVIOUS
- 11H30 : SA MINING PRODUCTION -1.8% F/CAST VS -2.6% PREVIOUS
- 14H30 : US INFLATION (CPI) YOY 4.1% EXPECTED VS 4.9% PREVIOUS
- 14H30 : US INFLATION (CPI) MOM 0.2% EXPECTED VS 0.4% PREVIOUS
- 14H30 : US CORE INFLATION (CPI) YOY 5.3% EXPECTED VS 5.5% PREVIOUS
- 14H30 : US CORE INFLATION (CPI) MOM 0.4% EXPECTED VS 0.4% PREVIOUS
WEDNESDAY
- 08H00 : UK GDP 0.2% MOM EXPECTED -0.3% F/CAST
- 13H00 : SA RETAIL YOY -1.9% EXPECTED -1.6% PREVIOUS
- 14H30 : US INFLATION (PPI) MOM -0.1% EXPECTED VS 0.2% PREVIOUS
- 14H30 : US CORE INFLATION (PPI) YOY 1.5% EXPECTED VS 2.3% PREVIOUS
- 20H00 : US FED INTEREST RATE DECISION -UNCHANGED +5.25 EXPECTED
- 20H30 : US FED PRESIDENT POWELL SPEAKS.
THURSDAY
- 14H15 : ECB RATE DECISION +25BPS (3.75% PREVIOUS TO 4.00% F/CAST)
- 14H30 : US RETAIL SALES -0.1% MOM VS +0.4% PREVIOUS
- 14H30 : US JOBLESS CLAIMS 250K+ VS 261K PREVIOUS
FRIDAY
- 16H00 : US CONSUMER SENTIMENT 60 F/CAST VS 59.2 PREVIOUS
- FED SPEAKERS
- BULLARD, WALLER
Market Movement Today:
- The Rand rally continued as investor appetite for ZAR increased.
- The ZAR gaining more than 6% since the record low of R19.9000/$
- Risk assets gaining as speculation that the FED will not hike interest rates on Wednesday, supporting the case for a risk rally.
- The SP500 above 4300 as well as Gold below $2,000/oz.
- In addition, the SA bond yields also lower as foreign investor demand for local high yield continued.
- The SA 10YGB trading at 10.75% vs 11.25% (23/5/23).
- Domestically, the South African Reserve Bank remains reluctant to pivot away from policy tightening,
- after raising its benchmark interest rate into restrictive territory amid the rand weakness.
- The continued carry gap allowing for large gains for yield hungry investors.
- The ZAR also out performing vs the major currencies especially as the euro and pound also gained.
- Overall the Dollar on the back foot but finding some support in earlier trading.
- The dollar index steadied above 103.5 on Monday.
- This week however, dominated by the US FED’s FOMC interest rate decision,
- as well as the release of the US inflation rate on Tuesday.
Markets this morning
- USDZAR 18.7000
- DOLLAR 103.500
- EURUSD 1.0750
- SP500 4,287
- GOLD 1960
- US10YT 3.76
- Trade : SELL ON RALLIES as markets bet for no rate hikes
Expected Ranges:
- USDZAR : Expect a range 18.6100-18.8200
- Importers : 18.6800-18.6100
- Exporters : 18.7500-18.8200
- EURZAR : Expect a range of 20.0100-20.2200
- Importers : 20.0800-20.0100
- Exporters : 20.1500-20.2200
- GBPZAR : Expect a range of 23.5000-23.4200
- Importers : 23.5000-23.4200
- Exporters : 23.5800-23.6600
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OPENING RATES
- USDZAR : 18.7000
- EURZAR : 20.3200
- GBPZAR : 23.5300
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GLOBAL MARKETS
Stocks
- US stock futures edged higher on Monday as investors brace for the latest inflation data and the Federal Reserve’s policy meeting this week.
- Futures contracts tied to the three major indexes were all up at least 0.1%.
- Last week, the major averages finished slightly higher, with the Dow rising 0.34%, while the S&P 500 and Nasdaq Composite gained 0.39% and 0.14%, respectively.
- Investors are hopeful that inflationary pressures would show further signs of easing, supporting the case for a pause in the Fed’s interest rate hikes this week and maybe even in July.
Bonds
- The yield on the US 10-year Treasury note briefly touched 3.82% before dropping below 3.75%, after initial jobless claims jumped to the highest since October of 2021, lowering bets of a rate hike in the Fed funds rate next week and in July.
- Currently, market participants assign a 72% probability that the Fed will keep interest rates unchanged this month, and around 50% anticipate a 25bps rate increase in July.
- Traders now await the US CPI report due Tuesday and the PPI on Wednesday for further clarity on inflationary pressures, the last key economic indicators before the FOMC decision later on Wednesday.
On Friday
- DOW +43 at 33,876
- SP500 + 4.93 to 4,298
- NASDAQ +20 to 13,259
 image: Trading economics
OVERNIGHT HEADLINES
The US dollar
- The US dollar index steadied above 103.5 on Monday as investors geared up for US inflation data and the Federal Reserve’s interest rate decision this week.
- Last week, the index lost 0.5% as softer-than-expected economic data supported the case for a pause in the Fed’s tightening cycle at the upcoming meeting.
- Meanwhile, markets remain divided on whether the US central bank would hold rates steady or resume its policy tightening in July.
- Externally, investors also braced for monetary policy decisions from the ECB and the BOJ.
- The ECB is widely expected to raise its policy rate by 25 basis points this week and again in July to combat sticky inflation.
- Euro Dollar futures however continue to price for a 25 bps hike on Wednesday. FX news
Asian markets
- In Japan, the Nikkei 225 gained 0.52% to close at 32,434, rising for the second straight session, with nearly all sectors participating in the advance.
- Investors also digested data showing producer prices in Japan slowed more than expected in May, while looking ahead to the Bank of Japan’s policy decision on Friday.
- Notable gains were seen from technology and other index heavyweights also advanced.
- In China, the Shanghai Composite fell 0.3% to around 3,220, as economic uncertainties continued to weigh on sentiment, while hopes for further policy support buoyed the technology sector.
- Investors also remain cautious ahead of monetary policy decisions from major central banks this week, amid concerns that further interest rate hikes could dampen overall demand.
- Technology stocks advanced as China’s securities regulator vowed to support technology self-independence with fresh capital markets policies.
Crude oil
- US WTI crude futures fell below $70 /BL on Monday, sliding for the third straight session as caution dominated sentiment ahead of a heavy calendar week.
- The week will be headlined by US inflation data and the Federal Reserve’s interest rate decision.
- Persistent concerns about Chinese demand growth also weighed on markets as weaker-than-expected economic data pointed to a challenging recovery path for the world’s top crude importer.
- On the supply side, Russian oil exports to China and India increased even after the implementation of the EU’s embargo and the G7’s price cap mechanism that started in early December, Reuters reported.
- These bearish factors have so far outweighed Saudi Arabia’s efforts to boost prices by reducing an additional 1 million barrels per day of oil production in July. Gulf energy news
Gold
- Gold fell below $1,960/oz in subdued trade on Monday,.
- Traders citing caution dominated sentiment ahead of monetary policy meetings scheduled this week.
- The Fed, ECB and BOJ.
- Investors also braced for US inflation data this week that could influence the outlook for the economy and interest rates.
- Markets see an over 70% chance that the Fed will keep its benchmark interest rate unchanged on Wednesday,
- while remaining split on whether it would hold rates steady or resume its policy tightening in July.
- The BOJ is also expected to maintain its ultra-loose monetary policy on Friday,
- while the ECB is widely anticipated to raise its policy rate by 25 basis points this week and again in July to combat sticky inflation. Kitco metals
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