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GOOD MORNING
The ZAR strengthened to a 2 week high reaching 18.1000 after US CPI printed lower than expected.
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SUMMARY
The Rand gained more than 2% to reach 18.1000 after US CPI surprised markets to the downside.
- Yesterday, the annual inflation rate in the US slowed to 3% in June of 2023, the lowest since March of 2021 and compared to 4% in May and expectations of 3.1%.
- The slowdown is partly due to a high base effect from last year when a surge in energy and food prices pushed the headline inflation rate to 1981-highs of 9.1%.
- Energy cost slumped 16.7% (vs -11.7% in May), with prices falling 36.6% for fuel oil, 26.5% for gasoline, and 18.6% for utility gas service. Source US Bureau of Labour Stats.
On the back of the report, Risk assets traded sharply higher, with markets once again re-pricing Fed rate hikes for 2023.
- The SP500 higher by 2.5% since Monday’s low. The benchmark stock index reaching 4490.
- Other notable gains were for Gold to $1962/oz,
- The Euro, Pound and Yen also gaining sharply versus the Dollar.
- The Dollar index falling to 100.44 or (- 2.76%) since last week’s intermediate high of 103.60
- The benchmark US10YT yield falling sharply to reach 3.83% after the CPI data as traders now anticipate less rate hikes from the Fed in 2023.
- NB: All of this will be Rand supportive with markets ignoring any local economic and political issues. (i.e. Eskom and Russia etc)
Data This week
THURSDAY
- 08H00 : UK GDP MOM -0.4% EXPECTED VS 0.2% PREVIOUS
- 11H30 : SA MINING PRODUCTION YOY 3.0% EXPECTED VS 2.3% PREVIOUS
- 11H30 : SA MINING GOLD PRODUCTION YOY 26% VS 27.4% PREVIOUS
- 14H30 : US PPI MOM 0.2% EXPECTED VS -0.3% PREVIOUS
- 14H30 : US WEEKLY JOBLESS CLAIMS 249K EXPECTED VS 248K PREVIOUS
FRIDAY
- 16H00 : US MICHIGAN CONSUMER SENTIMENT 65.5 EXPECTED VS 64.4 PREVIOUS
Market Movement Today:
- The Rand made further gains to trade close to R18/$ in early trading.
- The local unit benefitting from a sharp retreat by the Dollar.
- The Dollar drop continued after US CPI printed lower than market expectations.
- Consumer inflation in the USA, slowed to 3% in June of 2023, the lowest since March of 2021 and compared to 4% in May and expectations of 3.1%.
- The result a sharp drop in Dollar yields as traders continued re-asses future Fed rate actions.
- The US10YT falling to 3.82% after reaching 4.06% earlier in the week.
- The drop in inflation allowing risk assets to trade sharply higher, with markets once again re-pricing Fed rate hikes for 2023.
- The SP500 higher by 2.5% since Monday’s low. The benchmark stock index reaching 4490.
- Other notable gains were for Gold to $1962/oz,
- This afternoon we have US producer inflation. A lower than expected will likely be ZAR positive and we could see more gains.
- And any upside surprise will likely sharply reverse the recent ZAR gains.
- Trade : SELL USDZAR on rallies
Markets this morning
- USDZAR 18.1300
- DOLLAR 100.33
- EURUSD 1.1144
- SP500 4,485
- GOLD 1960
- US10YT 3.83%
Expected Ranges:
- USDZAR : Expect a range 18.2600-17.9400
- Importers : 18.0200-17.9400
- Exporters : 18.1800-18.2600
- EURZAR : Expect a range of 20.3100-20.0300
- Importers : 20.1000-20.0300
- Exporters : 20.2400-20.3100
- GBPZAR : Expect a range of 23.7200-23.3600
- Importers : 23.4500-23.3600
- Exporters : 23.6300-23.7200
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OPENING RATES
- USDZAR : 18.1300
- EURZAR : 20.2000
- GBPZAR : 23.5800
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SOUTH AFRICA
- USDZAR 18.1300
- EURZAR 20.2000
- GBPZAR 23.5800
ESKOM
JHB WATER
- Rand Water is set to continue its planned infrastructure maintenance until Friday morning, which will see a reduced supply of water for residents across the City of Johannesburg.
- Homes and businesses in the metro will continue to experience water shortages until Rand Water concludes the maintenance of its pipelines.
- The bulk water supplier began its 58-hour project on Tuesday evening, and it’s scheduled to last until Friday morning. Source : EWN
AARTO
- The Constitutional Court has found that the Administrative Adjudication of Road Traffic Offences Act (Aarto) is constitutional.
- On Wednesday, the CON court overturned an order of the Gauteng High Court in Pretoria, which had found Aarto to be unconstitutional and invalid and that it should be scrapped in its entirety.
- In a unanimous decision delivered by Chief Justice Raymond Zondo, the justices agreed that Aarto and the way notices would be served to alleged offenders was not inconsistent with the Constitution.
- The court also concluded that Parliament had the competence to pass the Act.
- The Act set up a single national system of road traffic regulation, to hold motorists to account for traffic violations
- It allows for the introduction of the road traffic act demerit system. Source EWN
RUSSIA GATE
- CEO of Business Leadership South Africa Busisiwe Mavuso says the international community is very concerned about SA’s approach to the Russia-Ukraine war.
- She says the CEOs sit in boardrooms where these concerns are aired, and the government is not privy to them.
- CEOs of multinational firms have difficulty convincing their principals to continue investing in South Africa. Source MONEYWEB
GLOBAL MARKETS
Stocks
- Global stocks higher after soft US CPI report
- In regular trading on Wednesday, the Dow rose 0.25%, the S&P 500 gained 0.74% and the Nasdaq Composite rallied 1.15%, with nine out of the 11 S&P sectors ending higher.
- Markets higher after a softer-than-expected June consumer price index report eased some concerns that the Federal Reserve would need to keep raising interest rates to bring down inflation.
- Futures contracts tied to the three major indexes were all up at least 0.1%.
- Investors now look ahead to US producer inflation numbers on Thursday for more clues on the rates path. Source CNBC
Bonds
Yields lower on lower inflation expectations
- The yield on the US 10-year Treasury note fell below 4% retreating for the 4th consecutive session.
- The 10 Year Note Yield was 3.83 % on Thursday July 13, according to over-the-counter interbank yield quotes for this government bond maturity.
- Investors cheering a dovish CPI report that showed, US inflation cooled for the month of June to 3%.
- The CPI report eased some concerns that the Federal Reserve would need to keep raising interest rates to bring down inflation.
- Markets also focussed on US PPI this afternoon .
 image: Trading economics
OVERNIGHT HEADLINES
Asian markets
Asian markets mixed ahead of US CPI data.
- In Japan, the Nikkei 225 jumped 1.49% to close at 32,419, rising from one-month lows and tracking a rally on Wall Street.
- The overnight cooler-than-expected US inflation data raised hopes that the Federal Reserve is closer to the end of its tightening cycle.
- Investors also bought back technology stocks following days of consolidation, with notable gains from SoftBank Group (2.9%)
- In China, the Shanghai Composite jumped 1.26% to close at 3,236, reversing losses from the previous session and tracking global peers higher.
- The cooler-than-expected US inflation data raised hopes that the Federal Reserve is closer to the end of its tightening cycle.
- Hopes that a years-long crackdown on China’s technology industry is over also boosted sentiment,
- Chinese Premier Li Qiang urged tech companies to support a slowing economy. Source Reuters
Energy
Oil prices continue to rise on supply restrictions.
- WTI crude futures held its recent advance to around $76/bl on Thursday.
- Prices are hovering near two-month highs as cooler-than-expected US inflation numbers raised hopes that the Federal Reserve may be nearing the end of its rate-hiking cycle.
- Meanwhile, official data showed that US crude inventories surged by 5.946 million barrels last week, well above market expectations for a 0.483 million barrel increase.
- The IEA and OPEC will release reports later on Thursday to update their outlook on the oil market.
- The reports are expected to show a tighten in the second half of the year due to additional supply cuts by top crude exporters Saudi Arabia and Russia. | Source : Gulf news
Metals
Precious metals higher on the back of a weaker Dollar.
- Gold held around $1,960 /oz on Thursday after gaining more than 1% in the previous session.
- Traders citing softer-than-expected US inflation reading pushed the dollar sharply lower and limited expectations on how hawkish the Federal Reserve will remain in upcoming meetings.
- The annual inflation rate in the US slowed to 3% in June, coming in below market expectations of 3.1%, while the core inflation rate eased further to 4.8%.
- The Fed is still seen raising rates by 25 basis points this month, while traders scaled back bets of any further rate increases this year.
- Investors now look ahead to US producer inflation data on Thursday for more clues on the rates path. Source : KITCO
Currencies
Major currencies advancing against the Dollar after more “end of rate cycle” talk from Fed sources.
- The US dollar fell toward 100 on Thursday, sinking to its weakest levels in over a year as softer-than-expected US inflation numbers bolstered speculations that the Federal Reserve may be nearing the end of its rate-hiking cycle.
- The annual inflation rate in the US slowed to 3% in June, coming in below market expectations of 3.1%, while the core inflation rate eased further to 4.8%.
- The Fed is still seen raising rates by 25 basis points this month, while traders scaled back bets of any further rate increases this year.
- Investors now look ahead to US producer inflation data on Thursday for more clues on the rates path.
- The dollar slumped to over one-year lows against the euro and the sterling, while it depreciated to around one-month lows against the yen. source : Trading economics
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