GOOD MORNING
The ZAR retreated on the back of a rebound in the Dollar ahead of key data this week.
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Market Movement Today:
The ZAR weakness continued on the back of a Risk-off Dollar rally.
- The Rand crashed through the R18/$ support handle to reach R18.37/$ in early trading.
- Risk assets lower across the board, following FITCH ratings agency’s downgrade of the USA.
- The rating agency cited “the expected fiscal deterioration over the next three years,”
- a high and growing general government debt burden,
- and the erosion of governance” relative to peers.
- Fitch cutting the USA debt ratings from AAA to AA+.
- Stocks sharply lower with the SP500 lower and the Japanese Nikkei lower -2.58%.
- Investors booking profits, ahead of today’s ADP jobs report as well as Yield spike above 4%.
- The environment is remarkably different from a week ago as investors once again opted for the Dollar.
- We expect the ZAR weakness to continue on the back of a resurgent (safe-haven) Dollar, but advise caution ahead of Friday’s NFP report.
- The BOE is also expected to hike by 25bps tomorrow also likely to pressure risk assets.
- Technically, USDZAR is at its 50% retracement level, and a break likely to target 61.8% at 18.5000
- Trade: BUY USDZAR on DIPS
Data This week
Wednesday
- ***14H15 US ADP EMPLOYMENT CHANGE 188K EXPECTED VS 497K PREVIOUS
Thursday
- 9H15 SA S&P GLOBAL PMI 49 CONSENSUS VS 48.7 PREVIOUS
- 11H0 EU PPI YOY -3.1% VS -1.5% PREVIOUS
- 13H00 UK BANK OF ENGLAND RATE DECISION +25BPS FROM 5% TO 5.25%.
- 13H00 US BOE MPC MEETING MINUTES
- 14H30 US WEEKLY JOBLESS CLAIMS EXPECTED 227K VS 221K PREVIOUS
- 16H00 US SERVICES PMI 53 EXPECTED VS 53.9 PREVIOUS
Friday
- 14H30 US NON FARM PAYROLLS 200K EXPECTED VS 209K PREVIOUS
- 14H30 US UNEMPLOYMENT RATE 3.6% EXPECTED UNCHANGED
Market Highlights:
- The Rand lost more ground against a recovering Dollar.
- The local unit trading above R18.30/$ on the back of Dollar demand.
- Traders are wary of the upcoming Jobs data with ADP in the crosshairs later today.
- Markets are pricing for a 189k increase in private payrolls and anything higher is likely to send the Dollar higher.
- Rising Dollar yields are also supportive of the US dollar with the benchmark 10YT at 4.03%.
- Risk sentiment was also largely on the back foot on Wednesday
- News broke that ratings agency Fitch downgraded the US’s credit rating from AAA to AA+.
- The rating agency cited “the expected fiscal deterioration over the next three years,
- a high and growing general government debt burden,
- and the erosion of governance” relative to peers.
- Long ZAR positions under pressure and stops triggered above R18/$ sending the Dollar higher.
- We expect more of the same but caution advised ahead of the ADP (private payrolls) at 14h15
Markets this morning:
- USDZAR 17.9300
- DOLLAR 102.00
- EURUSD 1.0990
- SP500 4,598
- GOLD 1959
- US10YT 3.97%
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SOUTH AFRICA
Coal
- Global demand for coal is bringing mayhem to SA towns.
- Miners have no choice but to use trucks to cash in on record demand.
- SA became one of Europe’s main alternatives to Russian coal following Moscow’s invasion of Ukraine in February 2022.
- Suppliers are finding new buyers in India and China.
- It’s not possible to swap roads for rail because Transnet’s Freight Rail is crumbling.
- Miners have no choice but to use trucks to cash in on record demand. Source Moneyweb
SA-US relations
- Minister of Trade and Industry Ebrahim Patel admitted that the United States (US) did question South Africa’s relations with Russia.
- The discussions amid the ongoing war in Ukraine, while discussing a possible extension of the African Growth and Opportunity Act (AGOA).
- Earlier in July, Patel, alongside Minister of Finance Enoch Godongwana, visited Washington to discuss the state of trade agreements between the two countries.
- South Africa asked the US to consider an early extension of AGOA, set to expire in 2025.
- Patel said South Africa cannot afford to lose out on AGOA’s benefits.
- “The United States is our second largest country trading partner. At a country level, it follows China, which is our biggest trading partner.
- We sell about $15 billion worth of products to the United States.”
- South Africa faces losing the benefits of the trade programme as a result of its alleged relationship with Russia and its “fence-sitting” on Russia’s invasion of Ukraine. Source Moneyweb
GLOBAL MARKETS
Stocks
Bonds
Market Close:
- DOW +71 to 35,630
- SP500 -12 to 4,576
- NASDAQ -62 to 14,238
OVERNIGHT HEADLINES
image: Trading economics
Asian markets
- Asian equity markets lower after US debt downgrade.
- Fitch downgraded the US’s credit rating from AAA to AA+.
- In Japan, the Nikkei 225 dropped 1.1% to around 33,100, breaking a two-day rally.
- Markets weighed down by weak global sentiment after Fitch downgraded the US’s credit rating due to fiscal and governance-related uncertainties.
- Investors also continued to track the yen and JGB yields after the Bank of Japan made adjustments to its yield curve control policy at last week’s meeting.
- Technology stocks led the decline, with notable losses from Advantest (-3.2%), Tokyo Electron (-2.4%), SoftBank Group (-1.2%). Source Reuters
Energy
Oil prices higher US inventory drop.
- US WTI crude futures jumped more than 1% to above $82 per barrel on Wednesday, hitting the highest levels in over three months.
- An industry report showed that US crude inventories declined by 15.4 million barrels last week.
- The latest figure far exceeded market expectations for a 1.37 million barrel draw,
- and if confirmed by official data due later on Wednesday, it would mark the largest drop in US crude inventories in over four decades.
- Oil prices have also been rallying since late June as Saudi Arabia’s voluntary output cuts tightened global supply.
- The de facto OPEC leader is also expected to announce an extension of its 1 million barrels per day production cut through September at the group’s meeting on Friday.
- Meanwhile, the USA pulled an offer to buy 6 million barrels of oil for the US Strategic Petroleum Reserves to counter rising energy prices. Source Gulf news
Metals
Precious metals losing ground after US yields spike.
- Gold fell to around $1,946/oz on Tuesday, struggling to gain momentum as investors awaited more data to guide the economic and monetary policy outlook.
- The Fitch downgrade of the USA to AA+ from AAA , so far being ignored by traders.
- US 10Y’s back above 4% and supporting the recent Dollar at the expense of precious metals.
- Investors now look ahead to the key US monthly jobs report later in the week.
- Meanwhile, the Reserve Bank of Australia kept its policy rate unchanged at 4.1% during its August meeting, defying market expectations for a 25 basis point rate hike. Source Kitco
Currencies
Dollar higher on the back of higher US yields
- The dollar index appreciated to 102.3 on the first day of August.
- The Greenback, trading at high levels not seen in nearly a month, as risk appetite declined.
- Investors also digesting fresh economic data and the monetary policy outlook.
- The ISM manufacturing PMI for the US pointed to a ninth-straight month of contraction in the factory sector .
- The payrolls report due Friday is set to provide further clues on the labour market strength. Source : Forexnews
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