The ZAR consolidated near stronger levels after a raft of disinflationary data supported a dovish US FED Pivot.
The Rand consolidated near the R18/$ level, after the last week’s US economic data supported a slowdown (or even pause) in the FED’s hiking cycle.
- Both US CPI and PPI surprised to the downside, indicating the FED’s relentless hiking cycle is having the desired effect.
- In addition, the drop in banking lending to consumers and the flood of cash into money market funds, also suggesting further constraints on the broader money supply.
- The drop in money supply likely to support the disinflationary process and also pointing to economic headwinds facing the world’s largest economy.
- With inflation lower, we expect a pause sooner rather than later, with markets already pricing up to 3 cuts in H2 of 2023.
- However MAY futures are still pricing for a 25 bps hike.
- All of this suggesting a weaker Dollar as we move into the Q2 of 2023.
- The dollar index however finding some support on the bank of stronger than expected Bank earnings in the US.
- Major banks benefitting from the sharp inflows of deposits, following withdrawals from smaller banks.
- US consumer sentiment also unexpectedly increased in April allowing for an “orderly” decline in the Dollar.
- On the weekend, U.S. Treasury Secretary Janet Yellen said banks are likely to become more cautious and may tighten lending further in the wake of recent bank failures.
- Thus, possibly negating the need for further Federal Reserve interest rate hikes.
- Yellen said in a CNN “Fareed Zakaria GPS” interview that policy actions to stem the systemic threat caused by last month’s failures of Silicon Valley Bank and Signature Bank,
- had caused deposit outflows to stabilize, “and things have been calm,” according to a transcript released on Saturday. Source: CNBC
- USDZAR 18.0380
- DXY 101.62
- SP500 4147
- GOLD 2011
- EURUSD 1.0987
Data This week
- 14h30 : US BUILDING PERMITS EXPECTED 1.45MIO
- 14h30 : US HOUSING STARTS EXPECTED 1.4 MIO
- 08h00 : UK INFLATION 9.8% EXPECTED YOY VS 10.4% PREVIOUS
- 08h00 : UK CORE INFLATION 6% EXPECTED YOY VS 6.2% PREVIOUS
- 10H00 : SA INFLATION 7% EXPECTED VS 7% PREVIOUS
- 10H00 : SA CORE INFLATION 4.7% EXPECTED VS 5.2% PREVIOUS
- 11h00 : EU INFFATION 6.9% EXPECTED VS 8.5% PREVIOUS
- 13H00 : SA RETAIL SALES +0.3% EXPECTED VS -0.8% PREVIOUS
- 14H30 : US INITIAL JOBLESS CLAIMS +240K EXPECTED
Market Movement Today:
- The Rand holding onto hard fought gains after last week’s disinflationary data.
- The local unit opening around the 18.0500 level
- This morning we expecting some early week profit taking as traders look to reassess positions.
- This will result in some ZAR weakness.
- The ZAR however well supported by softer recent US data and a FED likely to pause soon.
- In addition, SA inflation data on Wednesda, likely to attract attention given the SARB’s last rate action of 50 bps.
- Weakness in the ZAR or more likely “Dollar rallies” provide opportunities for Exporters to sell Dollars.
- The data calendar relatively light, with SA inflation headlining the week’s releases.
- Recall, the previous release, had SA’s annual inflation rate edged up to 7% in February 2023 from 6.9% in the prior month,
- It was the first rise since last October, while markets had expected it to remain steady at 6.9%.
- This allowed the SARB to justify the previous 50 bps hike.
- Risk to the local unit : talks of Eskom stage 8, following the unit trips at Eskom.
- Trade : SELL USDZAR on Rallies.
- Sell 18.1300-18.1800
- Buy 18.0000-17.8900
- USDZAR : Expect a range 17.8900-18.2500
- Importers : 18.0100-17.8900
- Exporters : 18.1300-18.2500
- EURZAR : Expect a range of 19.7300-20.0000
- Importers : 19.8200-19.7300
- Exporters : 19.9100-20.000
- GBPZAR : Expect a range of 22.3800-22.2900
- Importers : 22.3800-22.2900
- Exporters : 22.4700-22.5600
- USDZAR : 18.0500
- EURZAR : 19.8400
- GBPZAR : 22.4100
- Eskom announced that the country will remain in stage 6 load shedding until further notice.
- However, according to some data, the country was silently dragged into stage 8.
- As the country was thrust into all-day stage 6 load shedding this week, data published on Friday revealed that Eskom had actually cut over 7,000MW of power from the grid on Thursday.
- By Eskom’s own definitions, this is equal to 8 stages of load shedding.
- The group explained the figure away by noting that the figure was around 5,700MW cut from the national grid (stage 6 load shedding)
- plus a further 1,400MW from its contracted customers (stage 4 load curtailment).
- Eskom update on loadshedding: Following the tripping of unit 2 at Koeberg Power Station this morning,
- Stage 6 #loadshedding will be implemented from 16:00 this afternoon until further notice. Eskom will communicate as soon as any significant change occurs.
- The City of Tshwane said that it would be meeting with Rand Water’s management this week to establish the structural challenges that have been leading to water outages.
- The city has been experiencing interruptions since last week after a cable theft incident led to a power outage at Rand Water’s Mapleton pump station.
- This outage led to water outages and interruptions across the City of Tshwane and some parts of Ekurhuleni.
- US stock futures rose on Monday as investors look ahead to a raft of earnings reports this week to gauge the health of corporate America.
- The Dow and S&P 500 futures rose 0.2%, while Nasdaq 100 futures were flat.
- Last week, the Dow gained 1.2% for its fourth straight weekly advance, while the S&P 500 and Nasdaq Composite ended 0.79% and 0.29% higher, respectively.
- Those moves came as investors reacted to signs of cooling inflation in the US and better-than-expected earnings reports from major banks despite the recent turmoil in the financial sector.
- However, investors continued to grapple with a highly uncertain outlook for the economy and interest rates,
- with the Federal Reserve intent on bringing down inflation despite projecting a mild recession later this year.
- The yield on the US 10-year note jumped to over 3.5% on Friday.
- It was the highest in two weeks, as investors continued to monitor the latest economic data for insights on the Federal Reserve’s path for the rest of the year.
- Last week, US retail sales contracted more than expected in March, although upward revisions for the prior month softened worries about low consumer activity.
- At the same time, strong corporate results from US banks downplayed systemic risks from the bank runs in March, giving the Fed more room to increase interest rates.
- Earlier data showed that producer and consumer inflation were lower than expected in March, while unemployment claims and non-farm payrolls showed some job market softening.
- The Dow declined 143 to 33,886
- The SP500 fell 8 to 4,137
- The Nasdaq fell 42 to 12,123
image: Trading economics
The US Dollar
- The US dollar rose toward 102 on Monday, rebounding further from one-year lows as the American economy’s resilience and strong earnings from major US banks.
- The data bolstered market expectations for another interest rate hike in May.
- US retail sales fell more than expected in March, but retail sales remained solid.
- Meanwhile, US consumer sentiment unexpectedly increased in April and inflation expectations for the year ahead jumped to a five-month high of 4.6%.
- Elsewhere, better-than-expected first quarter earnings results from JPMorgan, Citigroup and Wells Fargo eased market concerns about the recent banking turmoil.
- Markets are currently pricing a 25 basis point rate hike from the Federal Reserve in May.
- The dollar strengthened across the board, with the most pronounced buying activity against the euro and sterling. FX news
- Asian markets higher across the board on the back of positive risk sentiment following comments from Us treasury secretary Janey Yellen,
- that “…the banking system remains sound…” and that the recent banking crises, will likely result in a halt by the Fed.
- In Japan, the Nikkei 225 inched up 0.07% to close at 28,545 hitting its highest levels in five weeks, helped by gains in heavyweight banking stocks.
- Those moves came on the heels of a strong week as solid corporate results and dovish remarks from new Bank of Japan governor Kazuo Ueda lifted Japanese shares.
- Gains in the financial sector were led by Mitsubishi UFJ (2.6%), Sumitomo Mitsui (2.5%) and Mizuho Financial (2.1%).
- Other index heavyweights also advanced, including Nippon Yusen (3%), Toyota Motor (1.4%), SoftBank Group (1%), Hitachi (1.3%) and Panasonic Holdings (3.5%). Reuters
- WTI crude futures held above $82 per barrel on Monday after gaining more than 2% last week,
- as the IEA warned that a surprise production cut by OPEC+ will tighten the market more than expected and drive oil prices higher.
- The IEA also projected in its April Oil Market Report released Friday that world oil demand would climb by 2 million barrels per day in 2023 to a record 101.9 million bpd.
- Elsewhere, markets continued to fret about shrinking crude inventories at a key US storage hub, interrupted flows from Iraqi Kurdistan and signs of slowing Russian oil exports.
- Moreover, investors remained optimistic about Chinese demand, as data showed that the world’s top crude importer shipped in the most oil in almost three years last month. Gulf energy news
- Gold prices were trading around $2,016 / OZ on Monday, trying to recover from a 2% plunge of below $2,000 Friday.
- However prices, one-year highs hit late last week, with mixed US economic data prompting market participants to reassess the Federal Reserve’s rate hike path and boosted the dollar.
- Monthly US producer inflation unexpectedly fell in March, backing the lower-than-projected CPI print.
- Elsewhere, Fed governor Christopher Waller said the central bank still needs to raise borrowing costs,
- while Atlanta Fed President Raphael Bostic said one more 25bps hike can allow the Fed to end its tightening cycle. Kitco metals