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Morning NOTE

 16 February 2023


The ZAR continued to weaken on the back of a rampant US dollar supported by stronger than expected US Retail Sales.


The Rand traded to a weakest level of 18.0800, following more strong data out of the USA.

  • US retail sales surprised the market, unexpectedly jumping 3% MoM vs an expected figure of 1.8%.
    • It was the biggest increase since March of 2021 and way above market forecasts of a 1.8% rise.
    • NB: It follows a 1.1% drop in December.
    • The data showed that consumer spending remains robust after a slowdown last year,
      • on the back of  a strong labour market, wage growth and signs of easing inflationary pressures.
    • The US bond market reacted with yields spiking to 3.78% , resulting in a rally in the Dollar.
      • The Dollar at one stage above 104 and setting a new 5 week high.
      • More Fed governors stating the Fed has more room to hike rates given the strength of the US economy.
  • On Wednesday UK Inflation also showed a decline and SA CPI remained flat at 6.2% YOY.
  • However, a decline in SA retail sales at -0.6% YOY, indicating a SA consumer that remains on the backfoot.
  • Investors now look ahead to US producer inflation and weekly jobless claims data on Thursday.
  • And any surprises likely to lead to more market volatility

Data this week 


  • US PPI  6.2%   PREVIOUS  VS 5.4%  EXPECTED

Market Movement Today:

  • The ZAR remained under pressure following a stronger showing by the Dollar.
  • US yields continued to rise as investors rebalance portfolios in fear of another extended Fed hiking series.
  • This morning the unit again around R18/$ level after reaching a weakest level of 18.0800.
    • Markets continue to digest the CPI report and now expect the Fed to continue hiking to ensure a terminal rate is above 5%.
    • And today turn their attention to US PPI.
    • This after US Retail sales also surprised to the topside, supporting more Fed hikes.
  • UK INFLATION  : reported lower than expected sending the Pound lower and the SA CPI was in line at 6.9%.
    • ZAR CPI remaining above the SARB’s 3-6 band and will likely lead to more SARB hikes. (ZAR positive)
  • The market remains at the top end of the weekly range, and given the back drop of a stronger equity markets.
    • We expect some profit-taking towards the 17.8500 level.
    • This should be used by importers as buying opportunities, ahead of the PPI  report.
  • Medium term, these remain opportune levels for ZAR exporters who are also able to utilise both the Options and forward curves to hedge exposure forward.
  • Trade : short term importers to exact cover and exporters to utilise both fx options and FEC’s

Expected Ranges:

  • USDZAR :  Expect a range 17.8900-18.1300
    • Importers 17.9700-17.8900
    • Exporters 18.0500-18.1300
  • EURZAR :  Expect a range of 19.1700-19.3800
    • Importers 19.2400-19.1700
    • Exporters 19.3100-19.3800
  • GBPZAR :  Expect a range of 21.5600-21.8000
    • Importers 21.6400-21.5600
    • Exporters 21.7200-21.8000


  • USDZAR 18.0100
  • EURZAR 19.2800
  • GBPZAR 21.6900


Loadshedding to stay

  • Outgoing Eskom CEO Andre de Ruyter said that the country’s rolling power cuts were here to stay, at least for the remainder of the year.
    • This is contrary to the African National Congress (ANC)’s stance that it is possible to end load shedding by the end of the year.
    • The country has been experiencing uninterrupted stages of load shedding since December last year. IOL
  • The South African Civil Aviation Authority (SACAA) said that it was investigating the cause of a light aircraft crash that left one person dead in Centurion.
    • The aircraft went down at the Eagles Creek Aerodrome next to the N14 on Wednesday, crashing into a nearby river. EWN
  • Public service unions are believed to have broken ranks amid squabbles on a way forward on the 2022 wage impasse.
    • Wage talks soured last year when at least seven public service unions failed to convince government to concede to their demand for a 10% wage increase.
    • During the impasse, three union federations – Cosatu, Saftu and Fedusa – gave government an ultimatum to honour a three-year wage deal or face a national shutdown. News24
  • After a backlash over the Russian Navy’s presence in Cape Town, the EFF has now come forward with its proposal to end loadshedding.
    • The EFF proposes a deal with Russian state energy company, Rosatom, to resolve the energy crisis.
    • Floyd Shivambu favours Karpowership and other Floating Storage Regasification Units from China and Russia to provide energy relief.
    • The energy crisis featured prominently on the second day of the SONA debate. EWN


  • On Wednesday, the Dow rose 0.11% and the S&P 500 gained 0.28%, while the Nasdaq rallied 0.92% for its third straight winning day.
    • 9 out of 11 S&P sectors advanced, led by communication services and consumer discretionary.
    • Investors now look ahead to US producer inflation and weekly jobless claims data on Thursday.
  • US stock futures steadied on Thursday after the major averages climbed higher during Wednesday’s regular session,
    • as the market’s bullish sentiment overshadowed strong US retail sales data that suggested further Federal Reserve tightening ahead.
    • Futures contracts tied to the three major indexes were all trading near breakeven. CNBC
  • The US 10YT treasury yield continued to rise after stronger than expected Retail Sales data backing more Fed tightening. The rate rising to 3.78%.
  • Across the pond,
    • The yield on the UK’s 10-year Gilt fell to 3.43% from a near one-month high of 3.52% on February 14th.
      • Earlier the UK reported lower-than-expected inflation figures for the UK offered some relief about the need of a more aggressive monetary policy stance from the central bank.
      • Annual inflation rate eased for the third straight month to 10.1% in January and core inflation was the lowest in seven months, both below market expectations.
      • The new figures are not expected to change the need of further interest rate increases.
    • The Bank of England has raised interest rates by 50bps at the beginning of the month but dropped its pledge to keep increasing them “forcefully” if needed.
      • The governor also said inflation had probably peaked, while projecting a much shallower contraction than previously estimated. Source : BOE


  • The Dow +38 at 34,128
  • The SP500 +11 to 4,147
  • The Nasdaq +110 to 12,070

:  image: Trading economics


US Dollar

  • The dollar index declined to 103.6 on Thursday, retreating slightly from recent highs as investors reassessed the outlook for US monetary policy.
    • On Wednesday, the dollar reached an over five-week high of 104.11 as stronger-than-expected US retail sales data highlighted the economy’s strength.
    • Traders suggesting the Federal Reserve has more room to hike rates.
    • But, data also showed that the annual inflation rate in the US slowed slightly to 6.4% in January, the lowest since October 2021 but above market expectations of 6.2%.
      • Richmond Fed President Barkin and Dallas Fed President Logan stressing the need for further tightening should inflation persist above the target.
      • Investors now look ahead to US producer inflation and weekly jobless claims data on Thursday. FX news

Asian markets  well supported and trading higher on the back of a positive close on Wall street.

  • In Japan, the Nikkei 225 rose 0.71% to close at 27,696, erasing losses from the previous session and finding support from a weakening yen.
    • The drop in the Yen, supporting the outlook for Japan’s export-heavy industries and makes Japanese assets more attractive to foreign investors.
    • Japanese also stocks tracked Wall Street higher as the market’s bullish sentiment overshadowed strong US retail sales data that suggested further Federal Reserve tightening ahead.
      • also, investors digested data showing Japan posted a record trade deficit of 3.5 trillion yen in January, while machinery orders in the country remained subdued in December.
  • In Australia, the ASX 200 rose 0.79% to close at 7,410, rebounding from one-month lows and taking cues from a positive lead on Wall Street.
    • The market’s bullish sentiment overshadowed strong US retail sales data that suggested further Federal Reserve tightening ahead.
    • Investors also analysing data showing Australia’s unemployment rate unexpectedly rose to 3.7% in January, while inflation expectations in the country hit a four-month low in February.
      • Heavyweight miners advanced on higher iron ore prices, including BHP Group (0.4%), Fortescue Metals (1.5%) and Rio Tinto (0.3%). Reuters

Crude oil

  • WTI crude futures rose above $79 per barrel on Thursday, snapping a two-day decline as investors shrugged off official data.
    • Inventory data inventories jumped by 16.3 million barrels last week, far exceeding expectations of a 1.2 million barrel build.
      • An upbeat demand outlook from the IEA also supported prices, predicting that global oil demand will rise by 2 million barrels per day in 2023.
    • The IEA also said that China will account for almost half of this year’s oil demand growth after the country exited its strict zero-Covid policy.
    • Meanwhile, oil prices came under pressure earlier this week after the US government announced plans to release an additional 26 million barrels of oil from strategic reserves. Gulf Energy News


  • Gold remained around $1,840/oz on Thursday after a slight dollar pullback.
    • Investors reassessed the outlook for US monetary policy.
    • Still, the metal remains close to its weakest levels in over five weeks as strong US economic data bolstered expectations the Federal Reserve will need to keep pushing interest rates higher to bring down inflation.
    • In the latest Fed commentary, policymakers also largely backed more rate increases, stressing the need for further tightening should inflation persist above the target.
    • Gold is highly sensitive to the rates outlook as higher interest rates raise the opportunity cost of holding non-yielding bullion and vice versa. Kitco metals report .


  • Copper, considered an economic barometer, has been trading in a narrow range around $4.1/Lbs.
    • The key industrial metal  down more than 5% from its seven-month peak of $4.3/lbs touched in late January.
    • Traders citing  persistent fears of a demand-sapping global recession offset bullish bets for China’s reopening.
    • Major central banks, led by the Federal Reserve, have raised interest rates at an unprecedented pace contributing significantly to tightening financial conditions and sparking concerns about a sharp economic slowdown.
    • But, looking at the bigger picture, speculation grew that copper markets could be heading into a severe deficit amid increasingly challenging supply streams in South America. LME basemetals report

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