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GOOD MORNING
The ZAR continued to weaken against a rampant Dollar after US Producer inflation also reported higher than market expectations.
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SUMMARY
The Rand touched a weakest level of 18.2400 after US PPI surprised market expectations to print at 6% vs 5.4% expected YOY.
- The PPI however lower than previously and like CPI earlier in the week completely ignored.
- Traders citing the month on month rise in PPI as a concern.
However,
- Underlying economic conditions points to a rapid slowdown in the US economy, especially sectors affected by higher interest rates.
- Additional data reporting,
- US housing starts declined 4.5% i.e. a measurement of the number of new residential buildings under construction.
- US Industrial production also lower at 0.8% expected vs 1.1% expected.
- Markets however firmly fixated on a more aggressive Fed.
The US 10YT spiking to 3.89% at the time of writing, nearly 50bps higher than pre-NFP at 3.32%.Traders now calling for a 50 bps hike at the next meeting and a terminal rate higher than the current expected 5.25%.
- The Dollar index surging above 104 on Friday.
The buck hitting its highest levels in 6 weeks as stronger-than-expected US economic data and hawkish remarks from Federal Reserve officials lifted the currency.
The result a sell-off in the entire risk complex.
- The SP500 lower by 1.4%
- The Dollar higher by 1%
- The ZAR lower by 1.44%
The market now turning its attention to next week’s data
United States
- WEDNESDAY : 21H00 FOMC MINUTES * insight into the discussions of Fed governors in deciding rate policy.
- THURSDAY : 15h30 US GDP – * Expected lower
- THURSDAY : 15h30 US PCE – * Expected lower
South Africa
- Wednesday : SA BUDGET SPEECH 2023
- THURSDAY : 11H30 SA PPI
Market Movement Today:
- The ZAR remained under pressure following another strong showing by the Dollar.
- Risk assets tumbling across the board after US PPI surprised to the upside, and various Fed governors calling for a 50 bps hike in March.
- The Fed concerned that inflation might become entrenched and they are eager to avoid this.
- The result a continued spike in US yields, with the 10YT at 3.89%
- US yields continued to rise as investors rebalance portfolios in fear of another extended Fed hiking series.
- The entire risk asset complex selling off, including the SP500, Gold, EMFX including the ZAR.
- The Euro, Pound and the Yen also major losers against the American currency.
- US Inflation on both occasions for CPI AND PPI disappointing ultra-low expectations , HENCE RISK OFF,
- But continues to trend lower vs previous data.
- The narrative currently that inflation is not coming down fast enough and the Fed wants to ensure it does.
- However, given how far we are in the hiking cycle, the room for the Fed to hike are max 2 windows.
- And all of this will result in a re-rating in the Dollar as well as risk assets.
- Trade : short term importers to exact cover and exporters to utilise both FX options and FEC’s
Expected Ranges:
- USDZAR : Expect a range 18.0300-18.3600
- Importers 118.1400-8.0300
- Exporters 18.2500-18.3600
- EURZAR : Expect a range of 19.2300-19.5000
- Importers 19.3200-19.2300
- Exporters 19.4100-19.5000
- GBPZAR : Expect a range of 21.7000-21.6100
- Importers 21.7000-21.6100
- Exporters 21.7900-21.8800
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OPENING RATES
- USDZAR 18.2200
- EURZAR 19.3700
- GBPZAR 21.7700
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SOUTH AFRICA
- President Cyril Ramaphosa has moved to clarify the country’s energy path.
- He said that it was not true that government would be abandoning coal-fired sources.
- Responding to the debate on his State of the Nation debate on Thursday, the president moved to clarify the country’s energy path.
- Ramaphosa said that coal provided 80% of the country’s energy needs, and government had no plans to exclude it from its future energy mix.
- “We’ve just built two mega power stations – Kusile and Medupi – that generate some 8,000 megawatts.
- They were built at great costs and there is just no way we are going to shut those two stations down,” he said. EWN
- Government is intensifying efforts geared at implementing South Africa’s national health insurance.
- This was announced by President Cyril Ramaphosa as he responded to the debate on his State of the Nation Address on Thursday.
- Ramaphosa stressed that access to quality healthcare was key to improving the quality of lives of all South Africans. The Presidency
- Johannesburg City Power said that substations in Roodepoort were at risk of collapsing due to illegal mining by zama zamas.
- Residents were protesting in recent weeks, after being left in the dark on multiple occasions, accusing City Power of not helping them.
- City Power’s Isaac Mangena said that the illegal miners were working right outside major substations.
- “We are extremely concerned about the illegal mining practices. There’s a huge threat should the electricity infrastructure collapse or cave in.”
- However, Roodepoort residents said the utility left them in the dark. IOL
GLOBAL MARKETS
Stocks:
- US stock futures slipped further on Friday after the major averages suffered their worst drop in a month during Thursday’s regular session.
- The stronger-than-expected US economic data and hawkish remarks from Federal Reserve officials rattled financial markets.
- Futures contracts tied to the three major indexes were down at least 0.2%.
- In regular trading on Thursday, the Dow fell 1.26%, the S&P 500 dropped 1.38% and the Nasdaq Composite tumbled 1.78%, with all 11 S&P sectors ending lower led by consumer discretionary and technology.
- Those losses came as US producer prices increased more than expected in January, while weekly jobless claims unexpectedly fell.
- Fed’s Mester also said she sees a “compelling economic case” for another 50 basis point rate hike, a sentiment shared by Fed’s Bullard.
Bonds:
- US 10 Year Note Bond Yield was 3.89 percent on Friday February 17, according to over-the-counter interbank yield quotes for this government bond maturity.
- Earlier, Producer prices for final demand in the US increased 0.7% month-over-month in January of 2023, the most in seven months and higher than market forecasts of 0.4%.
- However, the annual PPI in the US slowed for a seventh straight month to 6% in January of 2023.
- It was the lowest since March of 2021, from an upwardly revised 6.5% in December, but above market forecasts of 5.4%. source: U.S. Bureau of Labor Statistics
Yesterday
- The Dow lower by 431 to 33,696
- The SP500 lower by 57 points to 4,090
- The Nasdaq lower by 214 to 11,855
:  image: Trading economics
OVERNIGHT HEADLINES
- The US Dollar
- The dollar index gained above 104 on Friday, hitting its highest levels in six weeks as stronger-than-expected US economic data and hawkish remarks from Federal Reserve officials lifted the currency.
- US producer prices increased 0.7% month-over-month in January, the most in seven months and higher than market forecasts of 0.4%.
- Data also showed that weekly jobless claims unexpectedly fell last week.
- Meanwhile, Cleveland Fed President Loretta Mester said she sees a “compelling economic case” for another 50 basis point rate hike,
- Also St. Louis Fed President James Bullard said he would not rule out backing a half-percentage point increase at the Fed’s March meeting.
- The dollar is currently up nearly 1% this week, on course to notch its third weekly gain in a row. FX news
- Asian markets declined on Friday, tracking Wall Street lower as stronger-than-expected US economic data and hawkish remarks from Fed officials.
- Officials hinting at another 50 basis point rate hike rattled financial markets.
- In Australia, RBA’s Lowe also said further rate increases would be needed to tame sky-high inflation.
- Shares in Australia, Japan, South Korea, Hong Kong and China all declined.
- In Japan the Nikkei 225 fell 0.66% to close at 27,513, giving back gains from the previous session. Stocks weighed down heavy losses on Wall Street overnight.
- US economic data and hawkish remarks from Federal Reserve officials who hinted at another 50 basis point rate hike prompted investors to dump risk assets.
- On Thursday, data showed that Japan posted a record trade deficit of 3.5 trillion yen in January due to weakening global demand and elevated import costs.
- Technology stocks led the market lower.
- In Australia the ASX 200 fell 0.86% to close at 7,347 following heavy losses on Wall Street overnight.
- The benchmark index also dropped 1.17% this week for its second straight weekly decline.
- Domestically, Reserve Bank of Australia Governor Philip Lowe told the parliament that further rate increases would be needed to bring down sky-high inflation.
- This even after the RBA lifted the cash rate by a total of 325 basis points to 3.35% since May last year.
- Technology also stocks led the decline on Friday. Reuters
- Crude oil
- US WTI crude futures fell below $78/ bl and were on track to end the week about 2% lower on the back of FED rate hike worries.
- Prices weighed down by strong US economic data and hawkish remarks from Federal Reserve officials who hinted at another 50 basis point rate hike to bring down inflation.
- Oil prices also came under pressure earlier this week after the US government announced plans to release an additional 26 million barrels.
- The release of oil from strategic reserves to counter Russian productions cuts.
- Prices under pressure as data pointed to a large build-up in US crude inventories. Gulf Energy News
- Gold
- Gold fell below $1,830 an ounce on Friday, sliding to its weakest levels in six weeks as stronger-than-expected US economic data and hawkish remarks from Federal Reserve officials weighed on the metal.
- Latest data showed that US producer prices increased 0.7% MoM in January, the most in seven months and higher than market forecasts of 0.4%, while weekly jobless claims unexpectedly fell.
- These reports came on the heels of robust retail sales data and a hotter-than-expected CPI reading, supporting the case for further monetary tightening.
- Gold is down about 2% so far this week, on track to book its second weekly decline in three. Kitco metals report.
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