The ZAR strengthened on the back of lower than expected US PPI data, before sharply reversing following the Russian missile in Poland.
- The Rand continued to trade at the stronger end of its range on the back of lower than expected US inflation data that could force the Fed to slowdown its hiking cycle.
- Fed governors however continue to push back saying that the current Fed funds rate remains below what is regarded as a restrictive rate to get inflation under control.
- Markets breathed a sigh of relief, earlier in the session, after NATO announced that the missile strike in Poland, was not from Russian forces but from a misguided Ukrainian missile that landed in Poland.
- The Ukrainians were trying to shoot down a Russian missile , and missed its target.
- The Dollar did receive a boost from better than expected US retail sales data, with 1.3% vs 1% expected.
- The data showing strong consumer spending.
- Allowing for room for the Fed to continue to hike.
- In the UK inflation printed at a whopping 11.1% vs 10.7% expected, the rise in gas prices the major contributor of close to 128%.
- However US 10Y treasury yields dropped to 3.71% as market continue to price in a “slower” Fed in 2023.
- The Dollar index finding some support at 106.36 on the back of the Retail sales data.
- The buck however under pressure on the lower yields.
- All this points to a risk on session and we expect a stronger ZAR.
Significant Market Data:
- 09h00 : UK INFLATION 10.6% YOY EXPECTED VS 10.1% PREVIOUS
- **surprised the markets higher with 11.1%
- 13H00 : SA RETAIL SALES +1% EXPECTED VS 2% PREVIOUSLY .
- **printed +0.1% mom vs -2.1% expected
- 15H30 : US RETAILS SALES 6.9% YOY EXPECTED VS 8.2% PREVIOUSLY
- The ZAR opening stronger after a late session sell-off following higher than expected US retails sales data.
- The dollar rebounding, but this morning once again retreating following, a drop in treasury yields.
- The 10YR trading at 3.71% on the expectation of a slower FED cycle in 2023.
- JP Morgan also suggesting the US might enter a mild recession on the back of the aggressive hikes by the FED.
- All this pointing to a Dollar under pressure, and support for Risk assets implying a stronger ZAR
- (at least until the last FED meeting in December and the ANC’s elective conference also in December).
- This morning we opening inside the previous day’s range suggesting a market comfortable at current levels and awaiting NEW information.
- Trade : TRADE THE RANGE 17.11-17.44
- Session sentiment likely to be “RISK ON“
- USDZAR : Expect a range 17.1100-17.4400
- Importers 17.2200-17.1100
- Exporters 17.3300-17.4400
- EURZAR : Expect a range of 17.8200-18.0600
- Importers 17.9000-17.8200
- Exporters 17.9800-18.0600
- GBPZAR : Expect a range of 20.4200-20.7200
- Importers 20.5200-20.4200
- Exporters 20.6200-20.7200
- USDZAR 17.2800
- EURZAR 17.9500
- GBPZAR 20.6000
Strike action looming
- it’s the final day for National Treasury to respond to the Public Servants Association of South Africa (PSA) and health professionals union( Hospersa’s) wage demands.
- The two public service unions submitted a memorandum of demands to National Treasury during last week’s strike in Pretoria.
- They gave the government a seven-day ultimatum to respond to calls for a 10% wage increase across the board.
- At last week’s strike, the public service unions affiliated with Fedusa drew a line in the sand,
- The union threatening that if NT don’t respond then they may have to deal with the impact of another national shutdown. EWN
- With the ANC elective conference fast approaching, former health minister has received the ack of ANC KZN.
- ANC-KZN once again endorsed and praised Zweli Mkhize – saying he is a visionary leader who can lead the country.
- The party’s provincial leadership was speaking during a meeting involving Mkhize and student organisations under the ANC at the University of KZN on Tuesday evening. Ewn
- With Zim visa’s fast approaching expiration dates, experts have said that
- Zimbabwean Exemption Permit (ZEP) holders should take advantage of the six-month extension granted by the South African government to apply for a mainstream visa or exemption.
- The general but mistaken sentiment among ZEP holders seems to be that it is a pointless exercise because applicants will inevitably not be successful with their applications. Moneyweb
- US stock futures edged higher in Asian trade on Thursday as investors digested a fresh batch of earnings reports.
- Investors also waiting for speeches from many Fed officials at various events later in the global day.
- In regular trading on Wednesday, the Dow shed 0.12%, the S&P 500 lost 0.83% and the tech-heavy Nasdaq Composite tumbled 1.54%.
- Those losses came as better-than-expected US retail sales data indicated that the economy can withstand more rate hikes,
- while disappointing earnings and weak guidance from Target hurt sentiment further.
- US 10 Year Bond Yield was 3.71 % according to over-the-counter interbank yield quotes for this government bond maturity.
- Yields continue to slide after the weaker than expected CPI and PPI reports.
- But Retail sales in the US surged 1.3% month-over-month in October of 2022, the strongest increase in eight months,
- after a flat reading in September and beating market forecasts of a 1% gain.
- The unexpected spike in Retail sales resulting in some support for bond yields.
- Noted hawk James Bullard is talking later in the day and markets likely to pay attention to what he says
- The Dow fell 39 to 33,533
- The SP500 fell 32 to 3,958
- The Nasdaq fell 174 to 11,183
- Asian markets mixed with the regional equities lower but US futures higher.
- In Japan, the Nikkei 225 fell 0.35% to close at 27,931, as stronger-than-expected US retail sales data and hawkish remarks from Fed officials stoked fears that the US central bank may tighten policy well into next year.
- Investors also reacted to data showing Japan’s trade deficit widened more than expected in October as soaring import costs outpaced export growth.
- Technology stocks mostly declined.
- In China, the Shanghai Composite fell 0.8% to below 3,100, sliding for the second straight session as the People’s Bank of China warned that inflation may accelerate.
- The PBoC stated risk to the upside was due to an expected pickup in demand, giving it less room for further monetary easing.
- China also continued to grapple with rising Covid cases which made the possibility of an economic reopening more uncertain. Reuters
- The US dollar index steadied above 106, but remaining supported after stronger-than-expected US retail sales data clouded the outlook for inflation.
- The data showing and indicated that the economy can withstand more rate hikes.
- Federal Reserve officials also continued to signal a firm hawkish stance, with San Francisco Fed President Mary Daly emphasizing that a pause is “off the table,” and stopping too soon remains a risk .
- Markets are betting that the central bank will deliver a 50 basis point rate hike in December and a series of 25 basis point increases early next year to bring the policy rate to around 5%.
- The dollar stabilized against other major currencies, while it gained sharply against emerging Asia currencies. Fx news
- Brent crude futures fell below $92/bl on Thursday.
- Prices extending losses from the previous session, on a weakening demand outlook after geopolitical tensions eased.
- Investors fretted about a gloomy economic outlook, with JPMorgan projecting that the US will enter a mild recession next year due to rapid rate rises.
- China also continued to grapple with rising Covid cases that clouded the demand outlook in the world’s biggest crude importer.
- Oil prices declined as well after NATO cleared Russia of the missile attack in Poland, allaying fears of a wider conflict in Europe.
- On the supply side, the supply outlook remains under pressure as the European Union is set to ban Russian crude flows from December, while OPEC is expected to keep supply tight. Gulf Energy News
- Gold prices fell below $1,770/ OZ, sliding for the second straight session as the dollar was buoyed by stronger-than-expected US retail sales data.
- The data clouding the outlook for inflation and indicated the need for more interest rate hikes.
- Federal Reserve officials continued to signal a firm hawkish stance, with San Francisco Fed President Mary Daly emphasizing that a pause is “off the table,”
- while Kansas City Fed President Esther George said that policymakers must be “careful not to stop too soon” on hiking rates and that achieving a soft landing might be difficult.
- Gold also declined as the safe-haven flows driven by the latest geopolitical concerns started to fade. Kitco metals report