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Morning NOTE

13 January 2023

GOOD MORNING

The ZAR strengthened on the back of another  lower US CPI print of 6.5%.

SUMMARY

The Rand strengthened to 16.6800 on the back of another US CPI data release.

  • US CPI in line with market expectations of 6.5% YOY but more importantly firmly lower than the previous print of 7.1%
    • The FED tightening appears to be doing its jobs as prices rises continues to moderate.
    • The FED however remaining cautious as it remains fixed on the inflation target of 2%.
       
  • However, the data showing that prices are slowing and that the Fed could slowdown sooner than expected.
     
  • Risk assets rallied across the board, with  the Dollar suffering the most as investors exited from the “safe-haven” Dollar.
    • The Euro hitting 1.0845; the Sp500 above 4000 and the US10YT at 3.45%
    • All of this resulting in a rally in the Risk complex with EMFX and the ZAR all gaining.
       
  • Locally politics i.e. Zuma v Ramaphosa as well as stage 6 loadshedding being ignored in favour of the carry trade.

 

Data this week

FRIDAY

  • 17H00 : US CONSUMER SENTIMENT, WITH 60 EXPECTED VS 59.7 PREVIOUS

Market Movement Today :

The Rand traded stronger following the US CPI report to briefly to below 16.7000.

  • Risk assets continue to advance at the expense of the Dollar following a 6.5% US CPI print 
    • It was the 6th month in a row of declining price pressures.
       
  • The Euro and Yen the largest gainers with the ZAR also higher as the global Risk complex traded higher
  • EURUSD  reached 1.0870 and the Yen blasted below 130 to reach 128.70
     
  • This all supporting EMFX like the ZAR against the Dollar.
     
  • This morning, the market retracing on the back of early profit taking ahead of the European open at 10h00.
    • We  once again expect a bit of weakening as traders book profits, but levels above 16.8000 now present attractive USD SELL opportunities.
       
  • The trend remains in favour of the ZAR, and we look for opportunities to SHORT USDZAR.
     
  • On the back of US INFLATION

 
TRADE : SELL USDZAR ON RALLIES

Expected Ranges:

  • USDZAR :  Expect a range 16.6300-16.8400
    • Importers 16.7000-16.6300
    • Exporters 16.7700-16.8400
       
  • EURZAR :  Expect a range of 18.0900-18.2100
    • Importers 18.1300-18.0900
    • Exporters 18.1700-18.2100
       
  • GBPZAR :  Expect a range of 20.3200-20.5300
    • Importers 20.3900-20.3200
    • Exporters 20.4600-20.5300

OPENING RATES

  • USDZAR 16.7500
  • EURZAR 18.1500
  • GBPZAR 20.4200

SOUTH AFRICA

  • President Cyril Ramaphosa on Thursday said that he could not interfere in a statutory process that could see South Africans forced to shoulder another electricity price hike.
    • The National Energy Regulator was considering a 32% tariff hike application from Eskom, while South Africans have to go for hours without electricity.
    • Presidency spokesperson Vincent Magwenya said Ramaphosa was concerned about the ever-increasing cost of living.
      • South Africans were not even getting the electricity they paid for.
         
  • South Africans are outraged about Eskom being granted a tariff increase.
    • The National Energy Regulator of South Africa (Nersa) on Thursday gave the go-ahead for the power utility to implement an electricity tariff increase of 18.65% from April.
    • The announcement comes as the country is experiencing stage 6 rolling power cuts.
       
  • ZUMA V RAMAPHOSA
     
  • The court will deliver its verdict on Monday  at 09h30

GLOBAL MARKETS

  • US main markets all higher across the board after a benign inflation report .
  • On Thursday, the Dow and Nasdaq Composite both gained 0.64%, while the S&P 500 added 0.34%, with eight of the 11 S&P sectors finishing higher led by energy, real estate and communication services.
    • US stock futures were little changed on Friday as investors cautiously awaited earnings reports from major banks, while assessing the latest inflation report and its implication on monetary policy.
    • Those moves came as the December CPI report showed that the annual headline and core inflation rates in the US slowed to 6.5% and 5.7%, respectively.
    • The data confirming expectations of further easing in inflationary pressure and bolstering the case for a less aggressive tightening from the Federal Reserve.
    • Investors now look ahead to the latest quarterly results from big bank stocks on Friday including JPMorgan Chase, Wells Fargo, Citigroup and Bank of America. Reuters

Bonds:

  • US 10 Year Note Bond Yield was 3.45 percent on Friday.
    • Yields continued to drift lower following another lower US CPI report at 6.5% .
    • In addition Core inflation also declined to 5.7%. Investors betting on a Fed pivot sooner rather than later as price pressures declined  the World’s largest economies.
    • This going against the comments from Fed governors earlier in the week who all favoured to keep rates higher for longer.  CNBC

Yesterday

  • The Dow added 216 to 34,189
  • The Sp500 added 13 to 3,983
  • The Nasdaq  gained 69 to 11,011

OVERNIGHT HEADLINES
 

  • The US dollar traded around 102.3 on Friday, hovering near its lowest levels in seven months.
    • Data showed that US inflation eased further in December, increasing  bets that the Federal Reserve will slow the pace of interest rate hikes.
    • The annual inflation rate in the US slowed for a sixth straight month to 6.5% in December, in line with market forecasts.
    • That was also the lowest reading since October 2021 and follows a 7.1% rise in November.
    • Markets are now betting that the central bank would downshift to a smaller 25 basis point rate hike in its next meeting after delivering a half-percentage point increase in December.  FX news
  • Asian markets mixed and for once not following Wallstreet higher.
    • In Japan, the Nikkei 225 fell 1.25% to close at 26,119, weighed down by a yen rally that dimmed the outlook for Japanese exporters.
      • However, the benchmark indexes finished the week higher as easing inflationary pressure in the US bolstered the case for a less aggressive tightening, sparking a rally in Japanese technology stocks.
    • In Australia, the ASX 200 climbed 0.66% to close at 7,328 on Friday, hitting its highest levels in nearly six weeks and tracking gains on Wall Street overnight.
      • Traders citing the easing of inflationary pressure in the US, supporting the case for a slower pace of interest rate hikes from the Federal Reserve.
        • Firmer commodity prices also helped the resource-heavy bourse notch its third straight day of gains, bringing the benchmark index to a more than 3% weekly rise.
        • Energy and mining stocks led the charge, as Gold stocks also advanced, including Newcrest Mining (0.3%), Northern Star Resources (0.7%) and Perseus Mining (0.4%).
        • Elsewhere, technology and financial firms gained as well, while retail shares declined.
           
  • US WTI crude oil traded near $78/ bl on Friday and were on track to gain about 6% this week, underpinned by an improving demand outlook in China and hopes for less aggressive interest rate hikes from the US Federal Reserve.
    • China ramped up crude purchases this week after Beijing issued new import quota.
    • Traders expecting a surge in consumption to a record, following the country’s exit from its zero-Covid policy, as observed by Bloomberg.
    • Meanwhile, US inflation eased further in December, reinforcing expectations that the Fed will slow the pace of interest rate hikes and supporting a rally in risk assets.
    • Elsewhere, OPEC+ decided in December to stick with their policy of restricting global supplies by 2 million barrels per day, a move due to run through the end of 2023. Gulf Energy News
       
  • Gold traded near $1,900/oz and was on track to notch its fourth straight weekly gain, as data showed that US inflation eased further in December.
    • The data fueling bets that the Federal Reserve will slow the pace of interest rate hikes.
    • US CPI  slowed for a sixth straight month to 6.5% in December, in line with market forecasts.
      • That was also the lowest reading since October 2021 and follows a 7.1% rise in November.
    • Markets are now betting that the central bank would downshift to a smaller 25 basis point rate hike in its next meeting after delivering a half-percentage point increase in December.
    • Meanwhile, investors remain cautious following a drumbeat of hawkish remarks from Fed officials this week.  Kitco metals

 

 

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