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GOOD MORNING
The ZAR continues to trade near the weaker end of its recent range, with a break of 17.5000 a possibility.
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SUMMARY
- The Rand continues to test the 17.5000 level, with a break targeting 17.8000 over the medium term.
- The local unit briefly gained to 17.3500, following softer US PPI data and better than expected SA retail sales.
- Earlier, SA retail sales grew 8.6% YOY earlier in July of 2022, after a downwardly revised 2.3 percent fall in the previous month.
- It was also better than market forecasts of an 8.4 %. It was the steepest rise in retail activity since June of 2021.
- However, once the US session opened, the focus returned to Fed rate hikes with 75bps and now whispers of 100 bps making the rounds.
- Fed fund futures pricing in 100bps at 30%, given the Fed’s insistence of 2% inflation, markets are nervously aware of the latter.
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All eyes now turn to next week key Central bank meetings
On Wednesday , we have the US FOMC rates decision at 20h00 and this is followed by Powell’s Q&A at 20h30.
Then on Thursday we the SARB MPC rates decision at 15h00 SA time.
- These events are absolutely major and we are once again likely to see volatility spike, in terms of the Decision as well as the follow up statements.
- Traders will once again focus on the language that Powell uses.
- The SARB will raise its key interest rate by 75 basis points next week to halt inflation,
- This was on the back of Reuters poll found, adding another 25 basis points in each of the following two quarters before pausing for the rest of 2023.
- A majority of economists (12 of 20) in a September 7-14 poll, predicted another 75 basis points to 6.25% at its September 22 meeting following a similar move in July.
- The remaining eight expected a smaller half-point move. Moneyweb
Significant Market Data
Wednesday
- 14h30: US RETAILS SALES – EXPECTED 0%
- 15H15: US INDSUTRIAL PRODUCTION – EXPECTED %
Today
- This morning we CONTINUE to open WEAKER with continued tests of the 17.5000 level a warning sign.
- ZAR bears firmly in the driving seat as it tries to test weaker levels close to R18/$.
- The market likely to increase Dollar longs ahead of next week FOMC meeting.
- For any ZAR recovery we require the SARB to at least match the FED, else the ZAR could trade to levels last seen in the pandemic.
Expected Ranges
- USDZAR : Expect a range 17.3900-17.6000
- Importers 17.4400 – 17.3900
- Exporters 17.5600 – 17.6000
- EURZAR : Expect a range of 17.2300-17.5400
- Importers 17.3900 – 17.2300
- Exporters 17.4500 – 17.5400
- GBPZAR : Expect a range of 19.9800-20.2500
- Importers 20.0700 – 19.9800
- Exporters 20.1900 – 20.2500
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OPENING RATES
- USDZAR 17.4200
- EURZAR 17.3800
- GBPZAR 20.0400
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SOUTH AFRICA
- Former Chief Justice Sandile Ngcobo will lead an independent panel to consider whether President Cyril Ramaphosa should face an impeachment inquiry.
- Speaker Nosiviwe Mapisa-Nqakula announced on Wednesday night that Ngcobo,
- along with former Gauteng division judge, Thokozile Masipa,
- and University of Cape Town law professor, Richard Calland,
- will consider the evidence related to an alleged cover-up of a robbery on the president’s farm.
- This is a major blow to Ramaphosa who decided to remain silent on the matter. EWN
- Ramaphosa said a programme to assist the residents of Jagersfontein in the Free State would take guidance from the government’s successes during COVID-19.
- Ramaphosa visited the area on Monday after a dam wall collapsed at a local mine and destroyed several homes and farmland in the Charlesville area. EWN
- A potential investor for the grounded low-cost airline Mango has been found but remains a mystery.
- The Department of Public Enterprises told Parliament’s portfolio committee on Wednesday it was still waiting for a deal to be put on the table.
- But SAA chairman John Lamola sounded a warning about the viability of restarting the airline if the business rescue process continued to drag on. Money web.
GLOBAL MARKETS
Stocks:
- The Dow Jones and the S&P 500 erased slight gains from earlier in the session to hover below the flatline on Wednesday.
- The losses on the back of the higher-than-expected inflation reading.
- The data raised concerns that the Fed may further accelerate its rate-hiking path.
- A hot inflation reading raised prospects of an even more aggressive stance from the Federal Reserve,
- with Fed funds futures now placing a 30% likelihood of a full percentage point hike.
- A softer than expected US PPI REPORT, soothing fragile market nerves.
Bonds:
- The US 10-year Treasury yield consolidated above 3.4%, after a hotter-than-expected CPI report reinforced market bets on more hikes.
- The US annual inflation rate eased to 8.3% in August from 8.5% in July, less than markets had expected, while the monthly figure went up 0.1%, against expectations of a 0.1% decrease.
- The US central bank is widely expected to deliver its third straight 75 basis point rate hike at the September 20-21 policy meeting.
YESTERDAY
- The Dow 30 to 31,135
- The SP500 added 13 points to 3,946
- The Nasdaq gained 86 to 11,719
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 Image: Trading Economics
OVERNIGHT HEADLINES
- Asian markets tracking Wall Street higher, with largely smaller gains across the region.
- In Japan, the Nikkei 225 rose 0.2% to around 27,870, as Japanese shares sought stability after selling off in the previous session on higher-than-expected US inflation numbers.
- Investors now await the Fed next week with 75 bps and risk of 100 bps (30% priced into the markets).
- Earlier markets also digested data showing Japan’s trade balance posted a larger-than-expected deficit in August as imports surged on high energy costs and a weaker yen.
- The data highlighting the country’s fragile economic recovery and vulnerability to external price pressures.
- In Australia, the ASX 200 Index rose 0.4% to 6,856 recovering from its worst one-day drop in the previous session on higher-than-expected US inflation numbers.
- Energy stocks led the charge on higher oil prices,
- while financial shares also pushed the index higher, with the “Big Four” banks gaining between 0.4% to 1.7%. Reuters
- Brent crude oil bounced back above $95 per barrel as investors continued to assess the outlook for global demand.
- The International Energy Agency’s (IEA) latest report indicated a large-scale gas-to-oil switching in many countries,
- calculated to average 700,000 barrels per day from October 2022 to March 2023, double the amount vs 2021.
- However, the IEA, based in Paris France, pointed out that growth in global oil consumption is forecasted to weaken in the last quarter of 2022.
- as an economic slowdown intensifies but sees demand picking up strongly in 2023. Gulf news
- Gold prices traded around $1,700/oz recovering from previous session losses.
- The yellow metal recovering after a pull back in the Dollar following, the high CPI in the previous session.
- On Tuesday, a sharp dollar rally on the back of higher-than-expected US CPI numbers fuelled expectations.
- In Europe, investors are betting that the European Central Bank will continue to raise borrowing costs sharply after the central bank delivered a historic 75 bps rate hike earlier this month.
- While gold is considered a hedge against inflation and economic uncertainties, higher interest rates raise the opportunity cost of holding non-yielding bullion, denting its appeal. Kitco
- The US dollar bounced sharply to approach 110 after the latest CPI report showed inflation eased less than expected in August.
- The inflation print strengthening the case for the 3rd straight 75bps rate hike by the US central bank next week.
- The US annual inflation rate eased to 8.3% in August from 8.5% in July.
- This was however above market expectations of 8.1% while the core CPI also surprised to the upside with 6.3% .
- The most pronounced selling activity was against the Japanese yen, which crossed again 144, the lowest since July 1998 AND
- The Euro crossed parity AGAIN to trade at 0.9968, the pound was also approaching a 37-year low at 1.1491. FX news
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