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Morning NOTE

19 December 2022


The ZAR weakened sharply on Friday, to reach 17.7200 on the back of ‘post FED risk aversion as well as the ANC’s elective conference.


The Rand particularly under pressure as the ANC is expected to announce its NEW top 7 candidates to lead the party as they head to the 2024 elections.

  • Markets remain nervous and would prefer the incumbent Cyril Ramaphosa to remain in charge.
  • Currently former Health Minister Dr Mkhize , who was axed during the Covid-19 pandemic , the only serious challenger to Ramaphosa’s presidency.

Markets also trading on the back foot after the Fed said rates could rally above 5% in 2024, even though inflation clearly appears to be on a down trend.

  • The dollar index traded lower to 104.5, after gaining more than 1% in the past two sessions.
  • Traders still concerned that Federal Reserve’s rate hike path and the chances that it could tip the world’s largest economy into recession.
    • Last week, the Federal Reserve delivered a more moderate 50 basis point rate hike, though it projected a terminal rate of 5.1% in 2024  higher than previously indicated.
    • Key data this week will be the US PCE price index, as well as a slew of consumer activity and real estate data.

Risk event : the outcome of the ANC conference and their choice as president.

Significant Market Data:  


  • 15h30 : US BUILDING PERMITS EXPECTED 1.483milllion vs 1.512million previous (** insight into the effect of rate hikes on the  housing sector).

Thursday :

  • 15h30 : US GDP GROWTH QoQ EXPECTED +2.9% VS -0.6% PREVIOUS .


  • 15H30 US PCE YOY EXPECTED 5.5% VS 6% PREVIOUS  (** What the FED looks at for inflation).


  • The Rand opening weaker vs JHB’s close on Thursday.
    • Traders citing a hawkish Fed resulting in risk-off sentiment as well as the ANC elective conference.
      • President Rampahosa battling for top spot with former Health Minister Mkhize.
        • The ZAR likely to trade on the back foot ahead of this decision on Monday ,
  • NB:  a Ramaphosa presidency will be welcomed by the markets and we will see ZAR gains,
    • Likewise if he is defeated we can expect a sharp drop in the ZAR.
  • For now, the local agenda dominating ZAR FX sentiment.
  • The FED spooked markets with its hawkish rhetoric, but data suggests inflation has turned and we could see a more Dovish Fed in 2023,
    • And not the hawkish tone that they are projecting.
    • This will be ZAR supportive in 2023.
  • This morning the ZAR remains on the defensive ahead of the ANC announcement.
    • Risk management would indicate that short term hedging needs be addressed and both importers and exporters hedge at least 50% of those exposures.
  • TRADE : SELL USDZAR ON RALLIES ( on a Ramaphosa victory )

Expected Ranges

  • USDZAR :  Expect a range 17.4200-17.8400
    • Importers 17.5600-17.4200
    • Exporters 17.7000-17.8400
  • EURZAR :  Expect a range of 18.4200-18.9000
    • Importers 18.5800-18.4200
    • Exporters 18.7400-18.9000
  • GBPZAR :  Expect a range of 21.1100-21.7700
    • Importers 21.3300-21.1100
    • Exporters 21.5500-21.7700


  • USDZAR 17.6500
  • EURZAR 18.7200
  • GBPZAR 21.5100



  • ANC delegates brace for top 7 results after voting goes late into the night
    • WITH more than 4,000 delegates at the conference, the country should know on Monday whether Cyril Ramaphosa will lead the party for another five years,
    • or whether the change that many are calling for will result in the reins being handed to the former health minister, Zweli Mkhize. IOL


  • South African National Defence Force members will be deployed at some Eskom power stations.
  • Presidential spokesperson Vincent Magwenya confirmed this to eNCA.
  • The presidency made this request to the defence ministry as widespread sabaotage and damage had been caused by individuals at these key power plants. eNCA


  • The South African Weather Service says there’s a 30% chance of rain in Gauteng this week.
    • However SAWS doesn’t foresee a repeat of the floods that hit parts of Johannesburg almost two weeks ago,
      • The floods damaging homes and infrastructure, including electricity networks.
    • Forecaster Dipuo Tawana warned that there may be heavy downpours on Wednesday.
    • The heavy rain has wreaked havoc across the country for almost two weeks,
      • with some KZN municipalities also experiencing severe damage to infrastructure due to mudslides and flooding. EWN


  • US stock futures flatlined on Monday after two straight weeks of losses on Wall Street.
  • Traders remain on edge over the Federal Reserve’s rate hike path and the chances that it could tip the world’s largest economy into recession.
    • Last week, the Dow lost 1.66%, the S&P 500 dropped 2.09% and the Nasdaq tumbled 2.72%, resulting in the three benchmarks sliding for the second straight week.
    • Those moves came as the Fed indicated that rates could peak higher than anticipated in an effort to bring down inflation to sustainable levels, after it delivered a smaller 50 basis point rate hike.
  • The prospect of higher interest rates fuelled fears that the US economy could fall into recession next year, prompting a widespread selloff in risk assets.


  • The yield on the US 10-year Treasury, bounced back above 3.5% as prospects of further interest rates from the Federal Reserve dented appetite for government debt.
  • After delivering a widely expected 50 bps hike on Thursday, the US central bank reaffirmed its commitment to raise interest rates even further and keep them higher for longer to tame inflation.
  • Policymakers now expect the terminal rate for the Fed funds at 5.1% in 2023, with officials seeing no cuts until 2024.
  • BUT, investors see a much higher chance of a recession next year,
    • with sectors most sensitive to fluctuations in interest rates, like housing, flashing recessionary signs.
  • Meanwhile, the gap between 2 and 10-year bond yields widened to roughly 80 basis points, the largest since at least 1981. Bloomberg


  • The Dow declined 281 to 32,920
  • The SP500 fell 43 to 3,852
  • The Nasdaq  fell 105 to 10,705


  • The US dollar traded at 104.5 on Monday after gaining more than 1% in the past two sessions.
    • Investors continued to mull over the Federal Reserve’s rate hike path and the chances that it could tip the world’s largest economy into recession.
    • Last week, the Federal Reserve projected a terminal rate of 5.1% in 2024 after hiking 50 bps as expected.
    • Investors now look ahead to more US economic reports this week that could guide the rates outlook headlined by the PCE price index,
      • as well as a slew of consumer activity and real estate data. FX news
  • Asian markets fell on Monday as investors grappled with hawkish signals from the Fed that fuelled recessionary fears.
    • Rising Covid cases in China also weighed on sentiment, though authorities vowed to stabilize the economy with new policy measures.
    • In Japan, the government and central bank are reportedly planning to revise a policy statement to add flexibility to the 2% inflation target.
      • The Nikkei 225 dropped 1.05% to 27,238, closing at its lowest levels in over six weeks.
      • It was weighed down by weak global sentiment that the world economy was tilting into recession. Reuters
  • Crude oil WTI rose above $75/bl, snapping a two-day decline as Chinese authorities vowed to boost consumption at a key economic policy meeting.
    • The meeting sparking hopes of greater energy demand in the world’s top crude importer.
    • Adding to the bullish sentiment, the Biden administration is moving to replenish US emergency reserves starting with a 3 million barrel, fixed price purchase,
      • This would be a reversal  following a year of unprecedented release from strategic reserves to counter soaring energy costs.
      • The price cap imposed by the Group of Seven and European Union on Russian oil has also so far failed to disrupt flows, with top buyer India saying it does not expect problems.
      • Meanwhile, fears of a global recession continued to weigh on commodity markets as central banks in major economies are set to tighten policy further. Gulf energy news
  • Gold rallied up above $1,790/oz after rising nearly 1% in the previous session, benefitting mainly from recent dollar weakness.
    • Traders continued to assess whether the Federal Reserve’s rate hike path could tip the world’s largest economy into recession.
    • Meanwhile, the yellow metal came under pressure last week after the Fed delivered a 50 basis point rate hike,
      • though it projected a terminal rate of 5.1% next year, higher than previously indicated. Kitco metals

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