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Morning NOTE

15 December 2022


The ZAR continued its recent gains and reached 17.0500 ahead of the Fed’s final FOMC meeting on Wednesday.


The Rand strengthened to 17.0500 before losing some ground on profit-taking ahead of the final FOMC meeting of 2023.

  • The Fed did not disappoint and delivered a smaller rate hike of only 50 basis points, citing easing inflationary conditions.
    • They however lifted the terminal rate to above 5%, indicating more rate hikes in 2023.
    • This will of course be data dependent, especially after another benign inflation report, that showed CPI falling to 7.1% vs 7.7% previous.
  • This morning however, South Africans will wake up to the news that ESKOM CEO Andre’ De Ruyter resigned.
    • He  handed in his resignation to the Eskom Board chair Mpho Makwana .
    • Energy analysts predictin , the country already on the way to stage 7 as breakdowns intensifies at the aging PowerStation fleet.
  • SA and the investor community now awaiting, the next appointment as we head into the weekend’s ANC elections as well as Xmas holiday period.
  • Earlier in the day, SA Inflation also reported lower at 7.4% vs 7.6 previous, but Retail sales disappointed to negative 0.6% YOY,
    • This as South African’s face a cost of living crises on a daily basis.

Back to the Fed :

  • Markets reacted negatively at the close when the terminal rate was lifted and Policymakers projected rates would reach 5.1% next year,
    • before being lowered to 4.1% in 2024, a higher level than previously indicated.
  • The trend is however for lower inflation and this will be Risk asset supportive and also see ZAR gains in 2023.
  • For the ZAR, the “ NEW canary in the coal-mine” however remains ESKOM !

Significant Market Data:



  • The Rand reached 17.0500 BEFORE  reversing ahead of the Fed’s FOMC last night.
    • The US FED raised rates by the anticipated 50 bps, but markets were left nervous after the committee raised the terminal rate to 5.1%
      • It was higher than the 4.6% previously set and could likely result in more hikes in 2023.
    • However, the trend of inflation does not support this view, and it appears the FED COULD AGAIN MISS INFLATION.
  • RECALL:  They missed the inflation spike with the now infamous TRANSITORY rhetoric, and could likely miss the boat on the way down again !
    • This by hiking rates,  even though inflation appears to have peaked and seems to be reversing.
    • The flipside is that it could result in more aggressive rate cuts in Q4 as rates would need to be adjusted to reflect lower inflation.
    • This would be a real positive for risk assets and especially high yielding currencies like the ZAR.
  • This morning the ZAR giving up hard earned gains after the resignation of Eskom CEO Andre’ De Ruyter.
    • And like the “CAUTION first approach” adopted when CR faced impeachment, the market now keen to see who replaces him.
    • The spikes however represent opportunities to SELL USDZAR, as the inflation trend and lower rates will support this play.
  • Today, we also have the BOE AND ECB adjusting rates, and their press conference likely  to indicate more “dovishness” following the recent UK CPI print.
  • SA also releasing PPI INFLATION AT 11H30 with a lower number also on the cards at 15.7%


Expected Ranges

  • USDZAR :  Expect a range 17.0100-17.3700
    • Importers 17.1300-17.0100
    • Exporters 17.2500-17.3700
  • EURZAR :  Expect a range of 18.1900-18.4600
    • Importers 18.2800-18.1900
    • Exporters 18.3700-18.4600
  • GBPZAR :  Expect a range of 21.1600-21.4600
    • Importers 21.2600-21.1600
    • Exporters 21.3600-21.4600


  • USDZAR 17.2100
  • EURZAR 18.3400
  • GBPZAR 21.3200



  • Andre De Ruyter resigned and it is now widely expected that current board Chair Makwana will return to the position he occupied in 2009.
    • In 2009, Makwana – then a non-executive director – acted in that role for seven months.
      • He was reappointed to the board and installed as chairperson in October this year.
      • He has promised to bring down the price of electricity, while committing Eskom to dramatically improve the performance of the company’s creaking power stations. IOL
  • Andre’ De Ruyter resigned after severe political attacks from within the ANC government
    • and no public backing from either President Cyril Ramaphosa (himself under pressure following Phala-Phala) as well as
      • Public enterprises minsters Pravin Gordhan, who has also stayed silent.
    • De Ruyter felt his position to be untenable and subsequently issued his resignation
      • The Minister of Public Enterprises, Pravin Gordhan, wished André de Ruyter well after he resigned as Eskom’s chief executive officer (CEO).
        • Gordhan said De Ruyter “carried an enormous burden on behalf of South Africa” and thanked him for what he called “sacrifice and resilience in a difficult job”. News24

Loadshedding level : 5

  • Another strike is looming at Makro, as workers affiliated to the union Saccawu are set to down tools, along with workers at other companies within the Massmart group.
    • The union said that it would go on strike on Thursday, supported by workers from stores such as Game, Fruitshop, and Builders Warehouse.
    • This strike over wage increases follows another unsuccessful engagement with Massmart at the CCMA last week. EWN


  • The Dow lost 150 points on Wednesday, while the S&P 500 and the Nasdaq dropped 0.6% and 0.7%, respectively,
    • Investors digested the latest decision on monetary policy and subsequent remarks from Fed Chair Jerome Powell.
    • The FED raised its federal-funds rate by a half percentage point to a 15-year high.
    • At the same time, the peak for the federal funds rate is now projected at 5.1% next year, with cuts in rates coming only in 2024.
    • Meanwhile, Powell said at the news conference following the decision that interest rates would stay elevated for some time
    • but that the central bank is getting close to reaching the end of a tightening cycle. Reuters


  • The yield on the 10-year US Treasury note fell back to under the 3.5% mark, on projections of a sharp slowdown in the US economy.
    • The move showing investors challenging the Federal Reserve’s hawkish signals in its December meeting.
    • The Fed delivered a 50bps interest rate hike to 4.25%-4.5% as widely expected, slowing from the four consecutive 75bps increases since June.
    • The inversion of the spread between the 2-year and the 10-year bond yields widened past 76bps, approaching the 1981-high of 85bps touched on December 7th.
  • South Africa’s 10-year government bond yield was around 10.3%.
    • It was the lowest since November 30th, after the majority of SA’s parliament voted not to initiate impeachment proceedings against President Cyril Ramaphosa.
    • Investors were spooked in recent weeks by the uncertainty surrounding the fate of Ramaphosa and the continuity of his reform agenda.
    • On the domestic monetary policy front, SA inflation dropped to 7.1% that could affect the SARB’s monetary policy tightening agenda in 2023. Bloomberg


  • The Dow declined -142 to 33,966
  • The SP500 dropped -24 to 3,995
  • The Nasdaq was lower by -85 to 11,170



  • The Federal Reserve continued its battle against inflation by raising its benchmark interest rate to the highest level in 15 years.
  • The Federal Open Market Committee (FOMC) voted to boost the overnight borrowing rate by half a percentage point, taking it to a targeted range between 4.25% and 4.5%.
    • Along with the increase came an indication that officials expect to keep rates higher through next year, with no reductions until 2024.
    • The new level marks the highest the fed funds rate has been since December 2007.
    • More importantly it was last this high just ahead of the global financial crisis, whereafter the Fed loosened monetary policy aggressively.
      • …to combat what would turn into the worst economic downturn since the Great Depression. CNBC

Asian markets mixed on the back of a topsy turvy Wallstreet. Markets welcoming the FED’s 50 bps hike but then retracing on comments that rates will continue to rise in 2023.

  • In Japan, the Nikkei 225 opened sharply lower on Thursday before recovering to around breakeven.
    • Traders citing the US Federal Reserve’s widely expected 50 basis point rate hike, BUT the case for higher rates in 2023 spooking investors.
    • Investors also reacted to data showing Japan’s trade deficit expanded more than expected in November as imports outpaced exports.
    • Technology stocks mostly declined and tracked their US peers lower. Reuters
  • The US  dollar continued to slide on the back of benign inflation data as well as a smaller rate hike by the Fed.
    • The world’s largest central bank hiking rates by 50 bps causing the Greenback to fall below the 104 mark.
    • The Buck  hovering at the lowest level in six months as investors digested the Fed’s interest rate hike and fresh economic projections.
    • The central bank raised its key rate by 50bps as largely expected, but FOMC members indicated that its key interest rate will be at 5.1% by the end of 2023.
    • This was well above September’s projections of 4.6%, and challenging expectations that interest rate cuts would start in the third quarter of next year.
    • However, with inflation and price pressures easing across the globe, expect an adjustment to this policy. Fx news


  • Crude oil WTI rose more than 3% to above $77/bl and  Brent crude followed by also rising  more than 2% to $83/bl.
    • A chance of a demand recovery in China supporting the market.
  • OPEC and the International Energy Agency offered a somewhat bullish outlook for markets next year,
    • citing the reopening of the Chinese economy and a less aggressive tightening from major central banks as crucial drivers for growth and fuel demand.
  • On the supply side, OPEC+ decided to stick to their existing policy of reducing oil output by 2 million barrels a day from November through 2023.
    • At the same time, the Keystone Pipeline that connects fields in Canada to refiners in the US Gulf Coast remained shut.  Gulf energy news


  • Gold prices traded lower, but remained above $1800, retreating from session-highs of $1812.9.
    • Gold traders citing the Federal Reserve delivered a smaller 50bps rate hike as expected but signalled the terminal rate will be higher than initially expected.
      • At the same time, no interest rate cuts are anticipated before 2024.
    • Traders now await the ECB, the BoE and the Swiss National Bank monetary policy decisions due tomorrow.
      • Still, gold prices have been trading at six-month highs this month, as investors bet major central banks will soon start slowing the pace of rate increases. Kitco metals

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