The ZAR strengthened further, breaking through the key R18/$ level after US PPI also surprised to the downside.
The Rand touched R17.90/$ after in early trading after US PPI declined further and US yields continue to drop.
- On Thursday US Producer prices edged up 0.1% month-over-month in June 2023, following an upwardly revised 0.4% fall in May, and below market forecasts of a 0.2% rise.
- The further decline in inflationary pressures causing another sharp drop in yields and the Dollar
- Risk assets benefiting across the board, with stocks, precious metals and currencies, both EM and Major rallying at the expense of the Dollar.
- Traders now betting the Fed, will NOT hike in July, or that the 25 bps.
- The benchmark 10YT yield declining sharply to 3.79% as traders pair hiking bets for a less aggressive path ahead.
- The SP500 above 4500, Gold $1960/oz, Euro at $1.1215/€ and the UK Pound at $1.3109/£
- Markets however ignoring the stronger than expected Weekly jobs data after claims fell below market expectations, printing at 237k vs 250k
- For now the story remains INFLATION and we expect the Dollar to remain under pressure.
Data This week
- 16H00 : US MICHIGAN CONSUMER SENTIMENT 65.5 EXPECTED VS 64.4 PREVIOUS
Market Movement Today:
The Rand breached R18.000/$ to trade to R17.90/$
- The local unit benefitting further after US PPI printed lower.
- The result another, drop in the Dollar after US yields declined.
- The dollar plunged to over one-year lows against the euro and sterling,
- while it declined to multi-month lows against the yen and emerging market currencies.
- The US 10YT sharply lower to 3.7%
- Having gained significantly this week, we expect some profit taking from traders for the ZAR to move above $18/$.
- However the Dollar remains under pressure and we expect a strong ZAR to continue.
- Trade : SELL USDZAR on rallies
Markets this morning
- USDZAR 17.9600
- DOLLAR 99.9400
- EURUSD 1.1205
- SP500 4,509
- GOLD 1955
- US10YT 3.79%
- USDZAR : Expect a range 17.7400-18.1400
- Importers : 17.8200-17.7400
- Exporters : 18.0600-18.1400
- EURZAR : Expect a range of 19.9300-20.3300
- Importers : 20.0100-19.9300
- Exporters : 20.2500-20.3300
- GBPZAR : Expect a range of 23.3400-23.7400
- Importers : 23.4200-23.3400
- Exporters : 23.6600-23.7400
- USDZAR : 17.9600
- EURZAR : 20.1400
- GBPZAR : 23.5400
- Stage 6 loadshedding will continue to be implemented over the weekend.
- Eskom said, its needed in order to replenish emergency reserves and set a possible path for the reduction in stages of loadshedding in the coming week. News24
- President Cyril Ramaphosa says a phone call he had with Ukrainian President Volodymyr Zelensky on Thursday is evidence of South Africa’s continued critical role in resolving global conflicts.
- The two presidents spoke to each other for the first since Ramaphosa led a team of African heads of state to Ukraine and Russia in June in an attempt to try and end the war.
- He said, “I spoke to President Zelensky on issues that stem from our visit and discussions and SA continues to play an important role in seeing how conflicts can be resolved”. News24
- In addition, Former president Jacob Zuma is seeking medical treatment in Russia.
- The Constitutional Court on Thursday rejected his medical parole appeal, which may see him go back to prison.
- Jacob Zuma Foundation spokesperson Mzwanele Manyi confirmed that Zuma was unwell. News24
- Sasol was castigated by South Africa’s national air quality officer for failing to cut pollution as its bid for an exemption to sulphur dioxide emission limits at a giant petrochemical complex was denied.
- The exemption at the Secunda plant was refused because Sasol hadn’t demonstrated an effort to curb emissions of the toxin.
- The company is already benefiting from a 10-year postponement and is breaching legal levels for other pollutants, Patience Gwaze said in her decision.
- The decision was sent to South Africa’s biggest company by revenue on July 11 and seen by Bloomberg.
Global stocks higher after soft US PPI report
- In regular trading on Thursday, the Dow rose 0.14%, the S&P 500 gained 0.85% and the Nasdaq Composite rallied 1.58%.
- Nine out of the 11 S&P sectors ending higher led to the upside by communication services, technology and consumer discretionary.
- Those gains came as the latest producer price index report showed inflation rose less than anticipated in June,
- adding to signs that US inflation is on a downward trend and raising hopes that the current tightening cycle is nearing the end.
- Investors now await earnings reports from big banks such as JPMorgan, Wells Fargo and Citi on Friday for more clues on the economy.
- US consumer sentiment data from the University of Michigan is also on deck.
- This morning US stock futures held steady on Friday after four-day winning streak on Wall Street . source REUTERS
Yields lower after more dovish inflation data
- The yield on the US 10-year Treasury declined further to trade below 3.80% on Thursday.
- Yields extending its decline for a 4th session as further evidence that price pressures are slowing in the US raised hopes of a less aggressive path ahead.
- Both headline and core producer prices came in softer than expected in June, rising 0.1% from the previous month.
- Earlier, data showed headline inflation dropping more than expected to 3%.
- Still, the US central bank is widely expected to raise the funds rate by 25bps this month before holding rates unchanged until the end of the year. Source : CNBC
Markets (close) on Thursday
- DOW +47 to 34,395
- SP500 +37 to 4,510
- NASDAQ +219 to 14,138
Futures markets (open)
image: Trading economics
Asian markets higher after another dovish US inflation report.
- In Japan, the Nikkei 225 rallied to 32,3429 on a stronger Wallstreet after technology stocks continued to outperform.
- Tech tracking their US peers higher as data showing US producer prices rose less than expected in June bolstered bets that the Federal Reserve is close to the end of its rate-hiking cycle.
- Investors also assessed Japanese industrial output figures which declined more than anticipated in May.
- In Australia, the ASX 200 Index climbed 0.78% to close at 7,303. The index rising for the fourth straight session to its highest in three weeks.
- Technology and mining stocks leading the advance.
- Australian shares also tracked gains on Wall Street overnight as data showed that US producer prices rose less than expected in June.
- Traders of the opinion that the Federal Reserve is close to the end of its rate-hiking cycle. Source Reuters
Oil prices continue to rise on supply restrictions.
- Brent crude futures remained above $81/bl on Friday and were on track to advance for the third straight week.
- Global Supply concerns
- Prices remained well supported by supply disruptions and a tightening global market.
- Libya’s second-largest oil field is in the process of shutting due to protests, while there’s also a production halt in Nigeria, Bloomberg reported.
- That follows signs of Russian cuts as well as OPEC+ cuts.
- Moreover, OPEC maintained a positive outlook on world oil demand, raising its growth forecast for 2023 and predicting a slight slowdown in 2024, driven by strong fuel consumption in China and India.
- Cooler-than-expected US inflation numbers also raised hopes that the Federal Reserve may be nearing the end of its rate-hiking cycle, boosting market sentiment. Source : Gulf news
Precious metals higher on the back of a weaker Dollar.
- Gold increased to a 4-week high of $1963/oz, as renewed evidence of softer inflation added to hopes that the Federal Reserve’s tightening cycle will end this month.
- The data supporting the holding of non-interest-bearing precious metals.
- Both headline and core producer prices in the US edged 0.1% higher from the previous month in June, less than expected by markets, aligning with the softer-than-expected CPI print from the same period.
- Financial markets currently expect the US central bank to raise its funds rate by 25bps in its upcoming meeting and hold it unchanged for the rest of the year.
- Traders then anticipate a dovish pivot towards a more dovish stance in the first quarter of 2024. Source : KITCO
Major currencies advancing against the Dollar after more “end of rate cycle” talk from Fed sources.
- The US dollar index held its recent decline to below 100 on Friday.
- The Buck sinking to its lowest levels in 15 months as signs that US inflation is on a downward trend raised hopes that the Federal Reserve is nearing the end of its current monetary policy tightening cycle.
- Latest data showed that US consumer and producer inflation rose less than anticipated in June even as the US labour market remained robust.
- The US central bank is still seen raising rates by 25 basis points in July, while traders scaled back bets of further rate increases after this year.
- Market pricing also suggests that the Fed could start cutting rates next year.
- The dollar plunged to over one-year lows against the Euro and Sterling, while it declined to multi-month lows against the Yen. source : Trading economics