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Morning NOTE

2 November 2022

GOOD MORNING

The ZAR traded in a wide range after initially gaining on the back of positive risk sentiment before reversing later in the session.

SUMMARY

The Rand traded in a range of 18.3500 to 18.0500, after gaining on the back of the Risk trade to reach 18.0500.

  • The local unit  later reversing those gains to after US PMI data surprised to the upside to spike to 18.2700.
    • The Dollar index rebounding to once again trade above 111 and touch a highest level of 111.40.
    • US bond yields also spiked to reach 4.05% after reaching 3.95%  on the back of the PMI data.
       
  • US FOMC DECISION AT 20H00
    • All of this however taking a back seat as tonight FOMC RATE DECISION AND POST – DECISION SPEECH the most important market mover today.
    • Traders looking to see if Jerome Powell likely to hint at a slowdown in December, although economic activity currently don’t support that view.
    • Especially after strong recent data reports on NFP, GDP and PMI data out of the world’s largest economic and inflation sticky above 8%.
    • In addition the FED’s measure for PCE also printed at 6.3% last week , well above the 2% target for CPI.
       
  • The US dollar however finding some pushback after a surprise announcement by the Bank of Japan.
    • The BOJ Governor Kuroda suggesting the bank remains open to a policy adjustment to “exert control over the yield curve” , if their target for 2% inflation becomes a reality.
    • Traders also remained cautious amid speculations that Japanese authorities could intervene in the currency markets again as the US Federal Reserve is set to raise interest rates further.
  • This announcement supporting the ZAR and the unit gaining  0.70% from 18.2700 to 18.1400 (at the time of writing).

Significant Market Data:

  • FOMC AND NON FARM PAYROLLS

WEDNESDAY

  • 14H15 : ADP – US PRIVATE PAYROLLS  +190K EXPECTED VS 208K PREVIOUS
  • 20H00 : US FOMC  INTEREST RATE DECISION + 75 BPS  – FED FUNDS TO 4% TO 3.25% PREVIOUS.
  • 20H30 : FED PRESSER 
     

THURSDAY

  • 14H00: UK BOE  INTEREST RATE DECISION  +75 BPS EXPECTED NEW RATE 3%  PREVIOUS 2.25%
  • 14H00: UK MPC MINUTES
  • 16H00: US ISM NON MANUFACTURING 55.4 EXPECTED VS 56.7
     

FRIDAY

  • 14H30: US NON FARM PAYROLLS OCTOBER  200K EXPECTED VS 263K PREVIOUS
  • 14H30: US UNEMPLOYMENT RATE 3.6% VS 3.5% PREVIOUS

Today:

  • The ZAR opening weaker in early European trading as traders book profits on short term dollar shorts, ahead of the US FOMC tonight.
    • Stocks also trading in small ranges indicating a market, nervously awaiting the FED.
    • However, we do have private payrolls i.e. ADP at 14h15, and this likely to drive volatility later in the session.
  • For now the Range remains 18.0500-18.3900.
    • Likewise, a hawkish tone, could see the ZAR return to weaker levels of 18.5000.
    • Markets hoping for a signal the Fed will slow down could see the ZAR trade stronger and break the R18/$ level.
    • To break either side would be FED dependent in terms of the policy speech at 20h30.
  • Risk management : We encourage both importers and exporters to hedge at least 50% of short term exposures ahead of the meeting.
     
  • Trade: PLAY THE RANGE : 18.0500 BUY USDZAR  // 18.3800 SELL USDZAR

Expected Ranges

  • USDZAR :  Expect a range 17.9700-18.3400
    • Importers 18.0800-17.9700
    • Exporters 18.2100-18.3400
       
  • EURZAR :  Expect a range of 17.8000-18.0700
    • Importers 17.8900-17.8000
    • Exporters 17.9800-18.0700
       
  • GBPZAR :  Expect a range of 20.7000-21.0200
    • Importers 20.8200-20.7000
    • Exporters 20.9200-21.0200

OPENING RATES

  • USDZAR 18.1300
  • EURZAR 17.9300
  • GBPZAR 20.8700

SOUTH AFRICA

  • e-TOLLS SCRAPPED !!!

    • With the fuel price hike an additional burden for already stretched consumers,
      • pressure is mounting for the Gauteng government to provide clarity on whether motorists will be refunded following the scrapping of e-tolls.
      • Finance Minister Enoch Godongwana tabled the Medium-Term Budget Policy Statement in Parliament last week, ending years of debate about the controversial tolling system.
        • Godongwana said the government would take over billions of the South African National Roads Agency’s debt. EWN
           
  • FUEL HIKES

    • The Road Freight Association (RFA) says the surge in diesel prices means many consumers will stay at home and cut the lavish spending associated with the festive season.
    • November’s fuel price adjustment came into effect on Wednesday,
      • with diesel increasing by R1.42 per litre for 500ppm and R1.43 for 50ppm –
        • taking the price per litre of the two derivatives to R25.49 and R35.75 respectively. Moneyweb
  • RATES REFUND

    • The financial woes of the Tshwane metro have deepened after a group of residents earlier this month won their fight to be refunded unlawfully charged property rates dating back to 2011.
      • The Pretoria High Court issued a declaratory order for the capital city to put all affected ratepayers in the same position they would have been but for the unlawful action by the administration, and to do so within 90 days. Moneyweb

GLOBAL MARKETS

  • All about the FED.
    • US stock futures were little changed on Wednesday as investors braced for a key Federal Reserve policy decision.
      • In regular trading on Tuesday, the major averages gave up early gains to end lower, with the Dow shedding 0.24%, the S&P 500 losing 0.41% and the Nasdaq falling 0.89%.
      • Those moves came as solid US data reinforced the case for the central bank to stay with its aggressive tightening campaign.
      • The Fed is widely expected to deliver its fourth straight 75 basis point rate hike on Wednesday, while markets will be looking for guidance on its plans for December onwards.

Bonds:

  • The US 10-year yield, bounced back above 4% after better-than-expected ISM Manufacturing PMI threw a little cold water on expectations that an imminent pivot is on the horizon.
    • The US central bank will likely announce a fourth straight 75 basis point rate increase on Wednesday as it seeks to bring inflation back to its 2% target.
    • However, investors have been hoping that the Fed could slow the pace of policy rate increases later this year,
    • This amid mounting evidence that tighter financial conditions are already impacting the economy while fuelling concerns about a recession.

YESTERDAY

  • The Dow fell 79 to 32,625
  • The SP500 fell 15 to 3,856
  • The Nasdaq fell 97 to 10,988

OVERNIGHT HEADLINES

  • Asian stocks traded mixed on Wednesday, while bond and currency markets struggled for direction as investors cautiously awaited the Fed’s latest policy decision.
    • While the Fed is expected to hike rates by another 75 basis points, markets will look for signals about its future tightening plans.
      • Investors also assessed mixed reports about a potential end to China’s Covid-zero policy which sent Chinese stocks to a second day of gains.
  • In Japan, the Nikkei 225 shed 0.06% to close at 27,663 in mixed trade on Wednesday.
    • The benchmark remaining near their highest levels in six weeks, as investors cautiously awaited the US Federal Reserve’s latest policy decision.
      • markets will focus on its forward guidance amid speculations that it could slow the pace of rate increases soon.
    • The Yen : The Japanese yen strengthened toward 147/$ as BOJ Governor Haruhiko Kuroda hinted at a possible adjustment in the yield curve control policy “if the achievement of our 2% inflation target comes into sight.”
      • Traders also remained cautious amid speculations that Japanese authorities could intervene in the currency markets again as the US Federal Reserve is set to raise interest rates further.
      • Finance Minister Shunichi Suzuki said the government is concerned about a slow depreciation in the yen, not just volatile moves, as it raises the cost of living through higher import bills.
      • Japan’s finance ministry revealed that it spent about $43 billion between Sept. 29 to Oct. 27 to support its currency. Reuters
         
  • US Dollars rallied to reach 111.5 on Wednesday, ahead of a highly-anticipated Federal Reserve policy decision.
    • While the Fed is widely expected to raise interest rates by another 75 basis points on Wednesday, markets will focus on its forward guidance amid recent speculations that it could slow the pace of rate hikes from December.
    • Meanwhile, better-than-expected ISM manufacturing data and signalled that previous rate increases have yet to dampen the economic momentum,
      • And likely to keep the Fed on course to remain aggressive.
      • The dollar weakened across the board, with the most pronounced selling activity against the yen amid concerns about another currency intervention.
        • This after Bank of Japan Governor Haruhiko Kuroda hinted at a potential shift in the yield curve control policy. FX news
           
  • Crude oil and WTI crude futures rose above $89/bl  with more gains from the previous session after an industry report pointed to a big drawdown in US crude inventories.
    • The data showing that demand remains solid despite global growth concerns.
    • Data from the American Petroleum Institute showed that US crude stocks declined by about 6.5 million barrels last week, defying expectations for a build of 400,000 barrels.
      • Oil prices also jumped on Tuesday after an unverified social media post claimed that Chinese authorities are planning to exit Covid Zero, though the Chinese foreign ministry spokesperson said he was unaware of the plan.
    • Investors now await the US Federal Reserve’s latest policy decision that could affect the demand outlook.  GULF energy news
       
  • Gold prices traded near $1,650 /oz, holding a recent advance as the dollar and Treasury yields stalled ahead of a key US Federal Reserve policy decision.
    • While the Fed is widely expected to raise interest rates by another 75 basis points, markets will focus on its forward guidance amid recent speculations that it could slow the pace of rate hikes soon.
    • Meanwhile, robust US jobs data and better-than-expected US factory activity signalled that previous rate increases have yet to dampen the economic momentum, keeping the Fed on course to remain aggressive.
    • Despite recent gains, Bullion remained close to its lowest levels since April 2020, remaining under pressure as a general rise in borrowing costs raise the opportunity cost of holding non-yielding bullion. Kitco metals report

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