The ZAR strengthened on the back of profit taking ahead of multiple central bank rate decisions this week.
- The Rand clawed back 1% on the back of a Risk rally bounce in New York. The local unit however weaker in Asian trading.
- Traders booking some profits ahead of key FED and SARB rate decisions.
- Markets however remain on edge as close to 10 Central banks will exact monetary policy changes this week.
- Well know economist and ex-PIMOC chief, Mo El Erian alluded to the fact that close to 500 bps will be removed from global liquidity, due to central bank actions this week.
- It is quite clear that since Jackson Hole, that the narrative has changed to “ inflation under control at all costs”.
- Policy makers running hard to make up for the 2021 policy mistake, as the Covid-19 pandemic was closely followed by the INFLATION PANDEMIC.
- Powell and colleagues constantly reminding markets that inflation hurts the poor, more than the rich and that is why their stance is justified.
- Last week’s HIGH CPI print as well as solid labour markets likely to impact the decision, with 75 bps still the most likely outcome.
- On Monday, The SP500 experiencing a technical bounce as algos chased weak stops, and risk assets followed suit.
- The rally however not finding momentum in Asia, and we expect subdued trading ahead of the Fed tomorrow night.
- NB: the FED starts its 2-day deliberations today.
- Locally, Eskom continues to weigh on the ZAR, with inflation data due on Wednesday followed by the SARB MPC on Thursday.
- However the SOE did announce that some units have been restored and is once again online.
Significant Market Data
- 14h30 : US HOUSING STARTS +1.45 Million expected vs 1.44mio previous.
- *** ( the US housing sector indicating the health of the economy especially after continued rate hikes by the Fed.)
- 10H00 : SA INFLATION 7.5% YOY EXPECTED VS 7.8% PREVIOUS YOY
- 10H00 : SA CORE INFLATION 4.7% YOY EXPECTED VS 4.6% PREVIOUS YOY
- 20H00 : US FED RATE DECISION +75 BPS EXPECTED – FED FUNDS MOVING FROM 2.5% TO 3.25%
- 20H30 : US FED CHAIR ADDRESSES THE MEDIA
** Jerome Powell’s language will once again be under intense scrutiny for future rate hikes.
- 09H30 : SNB ( SWISS CENTRAL BANK) +75 BPS . ( ** the Swiss moving from negative rates to positive is significant).
- NB -0.25 % PREVIOUS TO +0.50%
- 13H00 : BOE MPC RATE DECISION +50 BPS EXPECTED
- 15H00 : SARB MPC RATE DECISION +75 BPS EXPECTED
- ** REPO FROM 5.5% TO 6.25%, PRIME FROM 9% TO 9.75%
- 20H00 : US FED CHAIR JEROME POWELL SPEECH
- This morning we are opening inside yesterday’s range (17.7900-17.5900).
- The open indicating a market that lacks directional conviction AND this is understandably so, ahead of a very big week for interest rates.
- The bias however remains to the weak side for the ZAR and it remains a BUY USD market.
- After testing 17.8000 (17.7990), a break would once again open up the chance of seeing R18 the figure.
- Eskom also remains a worry and traders worried that it could influence the SARB on Thursday.
- NB: The local unit NEEDS THE SARB TO MATCH THE FED.
- The ZAR remains vulnerable due to local ESKOM power cuts, but more significantly, Global Central Bank Rate decisions.
- For now markets all cautious, ahead of the FED and it is highly unlikely that we’ll see large ZAR gains this session.
- Trade : BUY USDZAR
- USDZAR : Expect a range 17.5000-17.8200
- Importers 17.6100-17.5000
- Exporters 17.7200-17.8200
- EURZAR : Expect a range of 17.6000-17.8600
- Importers 17.6700-17.6000
- Exporters 17.7600-17.8600
- GBPZAR : Expect a range of 20.0600-20.4200
- Importers 20.1500-20.0600
- Exporters 20.2700-20.4200
- USDZAR 17.7000
- EURZAR 17.7400
- GBPZAR 20.2200
- Eskom says it has managed to bring back to service units at several of its power stations and therefore power cuts have been reduced to stage 5.
- On Monday, the utility announced that generation units at Camden, Kriel, Kusile and the Kendal power stations had come back online. EWN
- In addition, Eskom has paved the way to secure an additional 1,000 megawatts of power.
- Eskom cannot provide power to the nation and it was looking to buy power from other sources as soon as possible. EWN
- After several failed national shut downs, the Unions are once again calling for strikes.
- Police union Popcru and public service union, Saftu, will take to the streets on Tuesday morning over a number of worker issues.
- Popcru wants better working conditions for police and prison wardens, including better measures for safety, while Saftu will rally for higher wages. News24
- The tailings dam collapse at Jagersfontein in the Free State on 11 September this year left one person dead and about 300 homeless.
- The dam sits alongside the former diamond mine owned and then closed down by De Beers in the 1970s.
- Investigations indicate that Jagersfontein Developments were ordered to cease its tailings operations in September 2020 by the Free State Department of Water and Sanitation (DWS), but that decision was strangely reversed in May 2021. IOL
SA RESERVE BANK
- The SARB Monetary Policy Committee (MPC) is set to hike interest rates on Thursday (22 September).
- The decision to fight inlflation that remains outside the SARB’s 3-6% band.
- In an attempt to support the rand and control inflationary forces, but economists differ in expectations on how much.
- Some economists are calling for 50 bps where other are calling for a 75bps to at least match the FED and protect a violent slide in the Rand. Moneyweb
- Major indices were all higher in New York, following large scale profit taking.
- On Tuesday, futures edged higher as Wall Street found some footing ahead of a key Federal Reserve policy meeting.
- Markets expecting another outsized rate hike to curb elevated inflationary pressures.
- In regular trading on Monday, the Dow rose 0.64%, the S&P 500 gained 0.69% and the tech-heavy Nasdaq Composite jumped 0.76
- Meanwhile, Ford tumbled more than 4% in extended trading after announcing that supply chain issues would cost the automaker an extra $1 billion in the third quarter.
- The US 10 YT yield passed 3.5%, approaching levels not seen since April 2011.
- Traders expecting the Fed will further accelerate the pace of its monetary tightening due to stubbornly high inflation.
- Last week, data showed US CPI rose at an 8.3% YOY in August, decelerating less than expected.
- In addition, while retail sales beat forecasts and weekly unemployment claims fell to their lowest level since May.
- Risks still remain that the Fed could raise interest rates by as much as 100bps on Wednesday, but markets are priced for 75 bps.
- Increasingly hawkish expectations raised Treasury yields across the board. Source : US Treasury
- The Dow added 197 to 31,019
- The SP500 gained 26 to 3,899
- The Nasdaq gained 86 to 11,535
- Asian markets rallying on the back of profit taking rally on Wall Street.
- Traders however remain nervous ahead of a raft of Central banks decisions, of which the FED remains the most important.
- In Japan, the Nikkei 225 rose 0.44% to close at 27,688, recouping some losses from last week and taking cues from a positive overnight session on Wall Street.
- Markets stabilized ahead of an expected interest rate hike from the US Federal Reserve.
- Investors also assessed data showing Japan’s headline inflation for August accelerated at the fastest pace in eight years.
- Inflationary pressures from higher raw material costs and a weak yen broadened.
- In Australia, the ASX 200 gained 1.22% to close at 6,802 after tracking overnight gains on Wall Street.
- Markets attempt to recover from recent declines ahead of an expected interest rate hike from the US Federal Reserve.
- Mining and energy stocks led the market higher amid a rebound in commodity prices.
- Strong gains from BHP Group (3%), Rio Tinto (2%) and JSE DUAL LISTED South32 (3%).
- Gold and clean energy-related shares advanced as well, extending sharp gains from the previous session. Reuters
- The US dollar declined to trade below 110 to base around 109.5.
- Investors remain positioned for another supersized interest rate hike from the FOMC to tame elevated inflationary pressures.
- Higher-than-expected inflation numbers and solid economic data has markets priced for a third straight 75 basis point increase.
- The US economy also showed relative strength in the face of slowing global growth, making the dollar more attractive for investors looking for safety.
- Meanwhile, investors remained cautious as other major central banks such as the Swiss National Bank and the Bank of England are also expected to raise interest rates this week, and a hawkish surprise could spur more currency volatility. Fx NEWS
- Brent crude oil gained to trade at $92/bl on Tuesday, as investors moved to the side-lines ahead of an expected interest rate hike from central banks across the globe this week.
- Rate decisions continues to worry Demand side of the equation.
- On the supply side, the US said it would release an additional 10 million barrels of oil from its strategic reserves.
- This to counter as a looming European Union ban on Russian oil is set to take effect in December.
- OPEC+ also fell short of its oil production target by 3.583 million bpd in August after missing its target by 2.892 million bpd in July.
- This a clear sign that major producers are struggling to increase output and meet demand. Gulf Energy news
- Gold prices found some support after the dollar retreated.
- The yellow metal steadied around $1,675/oz on Tuesday.
- It was hovering close to the lowest levels in over two years, as investors remained on the side-lines ahead of a key US Federal Reserve meeting.
- Higher-than-expected inflation numbers and solid economic data in the US last week cemented expectations that the Fed will tighten further.
- Gold lost its shine as a store of value in times of economic uncertainties as the Fed’s aggressive stance against inflation lifted the dollar at the expense of other safe-haven assets. Kitco metals