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GOOD MORNING
The ZAR gained on more dovish US inflation data to reach R18.20/$ on Friday.
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SUMMARY
The Rand continued to ride on the wave of “negative “dollar sentiment to reach R18.2000 in Friday trading.
- ZAR gains now topping 8% since setting a record low of R19.90/$ a few weeks ago.
- The local unit benefiting from the FED pause after the after the FOMC adopted a “hawkish pause”
- Markets focussing on the dovish parts of Powell’s speech and ignoring the comments of high PCE and Core US inflation data.
- This morning, the dollar index steadied above 102.
- Traders continued to assess the outlook for US monetary policy ahead of appearances from several Federal Reserve officials this week.
- Last week, the index tumbled 1.2% after the Fed decided to keep interest rates unchanged.
- The US central bank pausing even at a time that the other major central banks are still raising borrowing costs.
- BUT, the central bank hinted at further policy tightening this year, saying in its latest report to Congress:
- “… that inflation in key parts of the US services industry “remains elevated and has not shown signs of easing…”
SA-RUSSIA-UKRAINE
- Markets also turning their attention to SA President’s “peace mission” to Europe, where he visited both the Ukraine and Russia.
- It is understood that NO Cease fire was negotiated, but that
- Russian President Vladimir Putin, praised the “balanced approach” of African countries towards the Ukraine conflict.
- He said, ahead of formal talks with the delegation aiming to push for peace between Kyiv and Moscow.
- However, Earlier, Ukrainian president Volodymyr Zelensky ruled out talks with Russia as he met with members of the delegation, urging them to call out Moscow as the aggressor.
- Zelensky welcomed the delegation to Ukraine on Friday.
- After last week’s high octane data and Fed week, this week we welcome a few Fed speakers,
- Notably Jerome Powell’s 2 day congressional testimony.
Today : US HOLIDAY
Data This week
MONDAY
- 13H00 : ECB LANE SPEAKS
- 20H00 : ECB GUINDOS SPEAKS
Tuesday
- 09H00 : SA LEADING BUSINESS INDICATORS MOM -1.7% F/CAST VS -2% PREVIOUS
- 12H30 : US FED –BULLARD SPEAKS
- 14H30 US BUILDING PERMITS 1.425M EXPECTED VS 1.417M PREVIOUS
- 17H45 US FED – WILLIAMS SPEAKS
Wednesday
- 10H00 : SA CPI INFLATION 6% EXPECTED VS 6.8% PREVIOUS
- 10H00 : SA CORE CPI INFLATION 5.2% EXPECTED VS 5.3% PREVIOUS
- 16H00 : US FED CHAIR JEROME POWELL TESTIMONY TO CONGRESS
- 22H00 : US FED MESTER SPEAKS
THURSDAY
- 13H00 : Bank of ENGLAND RATE DECSION + 25 BPS TO 4.75%
- 14H30 : US JOBLESS CLAIMS 260K EXPECTED VS 262K PREVIOUS
- 16H00 : US FED CHAIR JEROME POWELL TESTIMONY TO CONGRESS
- 16H00 : US FED MESTER SPEAKS
FRIDAY
- 11H15 : FED – BULLARD SPEAKS
- 14H00 : FED BOSTIC SPEAKS
- 15H45 : ECB – PANETTA SPEAKS
- 15H45 : US MANUFACTURING PMI’S 48.3 EXPECTED VS 48.4 PREVIOUS
- 15H45 : US SERVICES PMI’S 54 EXPECTED VS 54.9 PREVIOUS
- 19H40 : US FED MESTER SPEAKS
SUNDAY
- 15H15 : US FED WILLIAMS SPEAKS
Market Movement Today:
The Rand rally continued with the local unit trading below R18.2000 in early Johannesburg trading
- The local unit gaining more than 8% since it traded at a record low of 19.8000 a few weeks ago.
- On the back of a US Market holiday today we expect “thin liquidity” conditions.
- Markets are however bracing themselves for FED testimony as
- Powell and other governors engage in a 2 day testimony before the US congress.
- In addition, noted speakers like Bullard, Williams, Mester and Bostic are all scheduled to speak during various time of the week.
- The Bank of England is also expected to raise rates by 25 basis pts as it continues to battle inflation
- Comments :
- Given the elevated levels of inflation is it unlikely that any of the above speakers would be dovish and
- We fully anticipated a retracement in the current ZAR rally i.e. due to a Dollar rebound.
- Also, on Wednesday, SA inflation data is expected to print lower, bringing headline inflation closer towards the SARB’s 3-6% level.
- A lower print would be deemed as dovish as could also place pressure on the ZAR
- On the local front, despite huge expense it appears Rampahosa’s visit to Russia and the Ukraine yielded no results,
- and the WAR will likely to continue.
- The West watching SA’s actions (and neutral stance) with the AGOA agreement in the front and centre.
Markets this morning
- USDZAR 18.2100
- DOLLAR 102.300
- EURUSD 1.0930
- SP500 4,410
- GOLD 1960
- US10YT 3.76%
Trade : BUY ZAR
Expected Ranges:
- USDZAR : Expect a range 18.1000-18.3100
- Importers 18.1700-18.1000
- Exporters 18.2400-18.3100
- EURZAR : Expect a range of 19.8100-20.0200
- Importers 19.8800-19.8100
- Exporters 19.9500-20.0200
- GBPZAR : Expect a range of 23.2200-23.4900
- Importers 23.3100-23.2200
- Exporters 23.4000-23.4900
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OPENING RATES
- USDZAR : 18.3500
- EURZAR : 19.8500
- GBPZAR : 23.2600
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SOUTH AFRICA
RAMAPHOSA RUSSIA
- The Democratic Alliance on Saturday said it would set out to determine exactly how much South African taxpayers’ had to fork out for the African peace mission to Ukraine and Russia.
- The mission has been beset by logistical challenges.
- A South African delegation that was sent over, including dozens of security personnel and journalists,
- was first detained at the Warsaw Chopin airport for 26 hours because of a dispute over weapons on board their plane.
- Later the plane was barred from flying over Hungarian airspace so they could get to Russia. EWN
ESKOM
- Eskom suspended load shedding until later on Monday afternoon when stage three will then kick in.
- The utility said that it was suspending the rolling power cuts as a result of improved generation capacity, following the return of some units to service. Eskom SM
WESTERN CAPE FLOODS
- The Western Cape Disaster Management Department said it was making progress in accessing most communities who have been badly affected by recent floods.
- The province has been hit by stormy weather for several days now, recording at least two deaths in the Overberg region and West Coast. News24
GLOBAL MARKETS
Stocks
- The Dow finished more than 100 points below the flatline on Friday, the S&P 500 and the Nasdaq lost nearly 0.4% and 0.7%, respectively.
- Investors continued to assess the outlook of monetary policy for the Fed amid a massive options expiration at the second 2023’s quadruple witching date.
- On the week, the Dow Jones added 0.9%, marking a three-week winning streak despite the Fed’s warning of future rate hikes.
- The S&P 500 gained 2.2%, its fifth consecutive weekly gain, the longest since November 2021, rising 2.2%.
- The Nasdaq was up 2.7% for an eighth straight positive week.
- Markets will be closed on Monday for the Juneteenth holiday.
Bonds
- The yield on the 10-year US Treasury note eased back below the 3.8% mark from the three-month high of 3.84% touched on June 13th.
- Traders digested the latest economic data for insights on the Federal Reserve’s policy outlook.
- Last week, the Initial jobless claims were well above market expectations and remained at 2021 highs in the middle of June.
- Also, core retail sales slowed as expected.
- The developments are in line with a series of other indicators showing that the US economy is cooling, limiting the leeway for the Federal Reserve to resume its tightening campaign.
- Growth concerns drove markets to price one final 25bps hike in the Fed’s July meeting, lowballing 50bps in rate hikes according to median forecasts from the FOMC’s dot plot.
On Friday
- DOW -108 to 34,299
- SP500 -16 to 4,409
- NASDAQ -93 to 13,2689
 image: Trading economics
OVERNIGHT HEADLINES
The US dollar
- The dollar index recovered to trade above 102 on Monday.
- Traders continued to assess the outlook for US monetary policy ahead of appearances from several Federal Reserve officials this week.
- Last week, the index tumbled 1.2% after the Fed decided to keep interest rates unchanged, pausing its aggressive tightening campaign at a time other major central banks are still raising borrowing costs.
- Markets now expect the Fed to raise rates again by 25 basis points in July and stop after that.
- Meanwhile, the European Central Bank delivered another 25 basis point rate hike on Thursday and signalled further tightening, while the Bank of England is set to raise rates again this week. FX news
Asian markets
- Eastern markets lower in early trading as Central bank uncertainties continue to hang over markets.
- In Japan, the Nikkei 225 Index fell 1% to close at 33,370, retreating slightly from 33-year highs amid a pullback in high-flying technology stocks.
- On Friday, the Bank of Japan maintained its ultra-loose monetary policy, opting to support a fragile economic recovery marred by slowing global growth.
- Japan’s central bank held its short-term interest rate target at -0.1% and that of 10-year bond yields at around 0% during its June meeting.
- It was a unanimous vote, in line with expectations.
- Losses in the technology sector were led by SoftBank Group (-2%).
- In China, stocks also lower.
- The Shanghai Composite fell 0.4% to 3,260, giving back some gains from last week as investors look ahead to the PBoC’s decision on its loan prime rate this week.
- China’s central bank slashed key short-term lending rates last week for the first time since August last year to support the economy,
- Latest data pointed to a faltering post-pandemic recovery. Reuters
Crude oil
- US WTI crude futures fell toward $71/BL.
- Prices giving back some gains from last week as global economic uncertainties continued to weigh on the demand outlook.
- Major banks have downgraded their GDP growth forecasts for China as latest data pointed to a faltering post-pandemic recovery in the world’s top crude importer.
- Meanwhile, the US oil benchmark gained 2.5% last week as interest rate cuts in China and a pause in the US Federal Reserve’s tightening campaign raised hopes for a demand rebound.
- Oil markets also got a boost from a sharp decline in the dollar, as a weaker greenback makes oil cheaper for holders of other currencies and drives up risk appetite in the markets.
- On the supply side, voluntary output cuts implemented in May by OPEC+ and additional cuts by Saudi Arabia in July kept oil prices supported. Gulf energy news
Gold
- Gold held below $1,960/oz.
- The yellow metal hovering close to its weakest levels in three months, pressured by hawkish statements from the US Federal Reserve.
- Last week, the Fed decided to keep interest rates unchanged but hinted at further policy tightening this year.
- Investors now await several appearances from Fed officials this week for further guidance.
- Meanwhile, the European Central Bank delivered another 25 basis point rate hike on Thursday and signalled further tightening, while the Bank of England is set to raise rates again this week.
- Gold remains highly sensitive to interest rate movements due to the opportunity cost of holding Gold i.e. a non-interest bearing asset. Kitco metals
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