The ZAR continued to trade stronger on the back of a weaker Dollar.
TThe Rand traded to a strongest level of 17.8000 following more Dollar weakness.
- The local unit continuing to advance against the Dollar, as other emerging market currencies like the Mexican Peso also advance.
- Joburg inter-bank traders however referring to Dollar weakness (not ZAR strength) as the Peso hit its highest levels since 2015.
- Supporting the Rand in early trading is this week’s MPC meeting, where traders are expecting a “final” hike of 25 bps by the SARB.
- Earlier this morning, Stats SA reported, SA CPI printed at 5.4% vs 5.6% expected and lower than the previous 6.3%.
- Core was also lower at 5.4%.
- The lower than expected number, could have and influence on SARB policy tomorrow as markets are priced for another 25 bps hike.
- A pause likely to provide ZAR bulls an opportunity to book profits.
- The story however remains the Dollar with the decline in US yields a major factor in the Greenbacks retreat.
- Next week, the US central bank is widely expected to raise interest rates by 25 basis points this month, while traders scaled back bets of further rate increases this year.
- Market pricing also suggests that the Fed could start cutting rates next year.
- The greenback hovered at a near 17-month low against the euro, while its gained some footing against the sterling, yen and antipodean currencies.
Data This week
- 08H00 : UK INFLATION RATE 8.2% YOY EXPECTED VS 8.7% PREVIOUS
- 08H00 : UK INFLATION CORE RATE 7.1% YOY EXPECTED VS 7.1% PREVIOUS
- 10H00 :SA INFLATION RATE 5.6% EXPECTED VS 6.3% PREVIOUS
- 10H00 : SA INFLATION CORE RATE 5.2% EXPECTED VS 5.2% PREVIOUS
- 11H00 : EU INFLATION RATE 5.5% EXPECTED VS 6.1% PREVIOUS YOY
- 13H00 : SA RETAILS SALES -1.8% EXPECTED VS -1.6% PREVIOUS
- 14H30 : US HOUSING STARTS 1.48M EXPECTED VS 1.631 PREVIOUS
- 14H30 : US WEEKLY JOBLESS CLAIMS 242K EXPECTED VS 237K PREVIOUS
- 15H00 : SARB MPC INTEREST RATE DECISION **UNCHANGED**
- REPO 8.25%, PRIME LENDING RATE 11.75%
- 08H00 UK RETAIL SALES MOM 0.2% VS 0.3% PREVIOUS
Market Movement Today:
- The ZAR continued its bullish run in early trading to reach the R17.800/$ level.
- Joburg interbank traders stating the level held after the Dollar found some support due to London institutional buying.
- This morning’s SA CPI data another indication of the SARB’s MPC policy decision later in the week.
- Headline inflation lower than previously at 5.4% and also below expectations.
- The level inside the SARB’s 3-6 band and cold allow for a pause by the SARB.
- Markets currently pricing in 25 bps.
- ZAR gains alongside the broader rally in risk assets after the SP500, GOLD and EM FX all higher after the decline in USA yields
- Locally, some geo-political risk attracting attention after SA president Cyril Rampahosa all but confirmed that SA wont be arresting Putin
- If he is to visit SA for the BRICS summit.
- However, the trend remains in favour of the ZAR ahead of the MPC tomorrow and the ZAR remains a BUY
- Trade : SELL USDZAR on rallies
Markets this morning
- USDZAR 17.8500
- DOLLAR 100.10
- EURUSD 1.1232
- SP500 4,561
- GOLD 1979
- US10YT 3.75%
- USDZAR : Expect a range 17.7600-17.9700
- Importers : 17.8300-17.7600
- Exporters : 17.9000-17.9700
- EURZAR : Expect a range of 20.0100-20.1600
- Importers : 20.0600-20.0100
- Exporters : 20.1100-20.1600
- GBPZAR : Expect a range of 22.8500-23.5400
- Importers : 23.0800-22.8500
- Exporters : 23.3100-23.5400
- USDZAR : 17.8700
- EURZAR : 20.0300
- GBPZAR : 23.1300
- The SARB is likely to increase the repo rate one more time according to a survey from major SA economists.
- Analysts citing another 25 bps.
- The Sarb’s hiking cycle has resulted in a combined 475bps increase in the repo rate since November 2021 when the central bank adopted a combative stance against sticky inflation.
- This rapid rise in the repo rate was a dramatic turnaround from the ultra-low pandemic levels of 2021, when the benchmark rate bottomed at 3.5%.
- Post pandemic it was the most aggressive policy tightening action by the Sarb since the 2006 to 2008 period. Source: EWN
- President Cyril Ramaphosa cited government’s problems with executing an arrest warrant for Russian head of State Vladimir Putin that is party to a war for which it’s trying to broker peace.
- He said, that arresting his Russian counterpart Vladimir Putin would complicate African leaders’ attempts to broker peace between Russia and Ukraine.
- This is contained in an affidavit to the North Gauteng High Court, which Ramaphosa was on Tuesday compelled to make public.
- In his affidavit, Ramaphosa also said that executing an arrest warrant from the International Criminal Court (ICC) could spark a war with Russia.
- The DA countered, that President Cyril Ramaphosa’s affidavit on the execution of an arrest warrant for Russian President Vladimir Putin was farcical. Source : Money web
- Eskom cancels R11bn deals in SA crackdown
- Litigation by Eskom has also had coal-supply agreements worth 3.7 billion declared invalid, and other coal and construction deals worth R10 billion have been set aside, Ramaphosa said.
- Eskom cancelled coal-supply agreements and construction contracts valued at R11 billion ($616 million), as the SA authorities crack down on crime at the state-owned utility, President Cyril Ramaphosa said. Source Moneyweb
- US stock futures held steady on Wednesday after the major averages notched gains during Tuesday’s regular session
- Traders citing upbeat corporate earnings results and growing expectations for a soft-landing scenario lifted sentiment.
- Futures contracts tied to the three major indexes were all trading near breakeven.
- In extended trading, Carvana dropped about 10% after announcing that it will report second quarter earnings results on Wednesday, earlier than scheduled reporting for August 3.
- In regular trading on Tuesday, the Dow jumped 1.06%, the S&P 500 gained 0.71% and the Nasdaq Composite added 0.76%.
- Eight out of the 11 S&P sectors finished higher, led to the upside by technology, financials and energy.
- Investors now look ahead to housing and building permits data on Wednesday, as well as earning reports from Tesla, Netflix and Goldman Sachs, among others.
- US 10 Year Note Bond Yield was 3.75 percent on Wednesday July 19, according to over-the-counter interbank yield quotes for this government bond maturity.
- All eyes turning towards next week’s FOMC meeting with markets pricing in a 25 bps rate hike.
- Recall, almost all FOMC participants judged it appropriate to leave the fed funds rate steady in June.
- The reason was to allow them more time to assess the economy’s progress toward maximum employment and price stability, minutes from the FOMC meeting in June 2023 showed.
- However, some favoured raising rates by 25bps.
- Still, all officials continued to anticipate that, with inflation still well above 2% goal and the labour market remaining very tight, maintaining a restrictive stance for monetary policy would be appropriate.
- Many also noted that a further moderation in the pace of policy firming was appropriate in order to provide additional time to observe the effects of cumulative tightening and assess their implications for policy.
- The Fed left the target for the funds rate unchanged at 5%-5.25% in June.
- After the FOMC decision, Fed Chair has reinforced several times the need to raise rates further this year. source: Federal Reserve. Source Reuters
- DOW +366 to 34,951
- SP500 +32 to 4,554
- NASDAQ +108 to 14,353
Eastern markets tracking Wall Street higher.
In Japan, the Nikkei 225 Index climbed 1.24% to close at 32,896.
- The rising for the second straight session and tracking gains on Wall Street overnight.
- Traders citing upbeat corporate earnings results and growing expectations for a soft-landing scenario in the US lifted sentiment.
- Investors also digested data showing sentiment among manufacturing firms in Japan declined for the first time in six months in July.
- On the monetary policy front, BOJ governor Kazuo Ueda signalled the bank’s commitment to ultra-easy policy, saying there’s still some distance to sustainably and stably achieve the 2% inflation target.
- All sectors participated in the advance, with notable gains from index heavyweights .
Crude prices stabilising after finding support on supply concerns.
- US WTI crude futures held above $75/bl on Wednesday after gaining 2% in the previous session,
- Demand supported underpinned by China’s pledge to support economic growth and signs of tightening global oil supplies.
- Chinese authorities pledged on Tuesday that they would roll out policies to “restore and expand” consumption in the world’s top crude importer.
- On the supply side, Russia’s energy ministry said the country will cut oil exports by 2.1 million tons in the third quarter, in line with planned voluntary export cuts of 500,000 barrels per day in August. Source : Gulf news
PPrecious metals remain well supported on the back of a weaker Dollar.
- Gold held above $1,970/oz on Wednesday, hovering near its strongest levels in two months amid a general dollar weakness.
- Traders citing easing US inflation raised hopes that the Federal Reserve is close to the end of its current monetary policy tightening cycle.
- Still, the US central bank is widely expected to raise interest rates by 25 basis points this month, while traders scaled back bets of further rate increases this year.
- Investors now await more US data and corporate earnings reports from major US firms this week for more clues on the economy.
- Meanwhile, the European Central Bank and the Bank of England are expected to tighten further in the coming months to bring down inflation.
- Elsewhere, data showed that China’s economy grew 6.3% in the second quarter, lower than the 7.3% expansion expected by analysts, raising hopes that authorities would unleash more stimulus to support growth. Source Kitco
The Dollar recovering from monthly lows early trading after taking a battering the last few session
- The US dollar index higher to trade around the100 mark on Wednesday, remaining subdued as investors continued to assess the outlook for Federal Reserve monetary policy.
- Traders also digested data showing US retail sales rose 0.2% month-on-month in June, the lowest reading in three months and below forecasts for a 0.5% gain.
- Still, the dollar remains close to its lowest levels in over a year as easing US inflation raised hopes that the Fed may be nearing the end of its current monetary policy tightening cycle.
- However, the US central bank is widely expected to raise interest rates by 25 basis points this month, while traders scaled back bets of further rate increases this year.
- Market pricing also suggests that the Fed could start cutting rates next year.
- The greenback hovered at a near 17-month low against the euro, while its gained some footing against the sterling, yen and antipodean currencies. Source : Fx news