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Morning NOTE

21 April 2023


The ZAR continued its gains on the back of a weaker Dollar and a continuation of poor economic data  out of the USA.


The local unit breaching R18/$ in overnight trading following another set of poor economic data out of the USA.

  • Following a higher that expected jobless claims report i.e. more people filing for unemployment.
    • The latest report once again illustrating the headwinds faced by the US economy.
    • In addition, benign inflation reports out of the Germany also supporting a change in the inflationary landscape.
  • Supporting the recent underwhelming earnings from the major banks, we also had Tesla disappointing the markets with recent earnings reports.
    • The EV manufacturing sending the SP500 lower; but NOT risk assets in general .
  • It was only after more rate hike rhetoric, that the Dollar found support and in turn ended up sending markets lower .
  • This time Cleveland’s Fed president Loretta Mester calling for more rate hikes to combat inflation, saying “ inflation remains too high” .
  • The number of voting members calling for hikes continues to increase and this all but confirms a 25 bp hike in May.
  • The risk to markets are “another hike in June?”,  BUT the data does not support this.
    • Reason: the Fed acknowledged by their own metrics, that rate hikes takes around 18months to affect inflationary conditions.
    • Therefore the rate hikes are working and driving inflation lower.
    • Anything more will risk sending the economy into a recession, resulting in even faster rate cuts, in H2 of 2023.
  • Commodities across the board coming under pressure on rate hike talks.
    • Gold sharply lower to trade at $1985/oz below the key $2000 level, crude oil as well as Copper prices also lower.
    • Traders citing recessionary fears and the strong potential for a drop in commodity demand driving prices lower.

The outcome remains the same : the Fed is at the end game for rate hikes and we expect the ZAR to ultimately gain from this in 2023.

  • USDZAR 18.0700
  • DXY 101.98
  • SP500 4128
  • GOLD 1984
  • US 10YT 3.52%

Data This week


  • 15h45 :  US S&P SERVICES  PMI EXPECTED  51.5  VS 52.6 PREVIOUS

Market Movement Today:

The Rand continued its recent gains to briefly trade below R18/$ on Thursday.

  • Soft US economic data and fears of a recession in the world’s largest economy pushing yields as well as commodity prices lower.
    • Gold prices sharply lower below $2000/oz to trade at 1995/oz on the back of a rebound in the Dollar.
    • The Dollar index recovering to reach 102.
  • The Dollar however finding support, NOT IN THE DATA , BUT FROM FED GOVERNORS who continue to call for higher terminal rates.
    • A host of governors continue to demand a hike in interest rates at the next Fed meeting.
  • On Thursday, higher than expected US jobless claims and poor PMI’s also supporting, the risk of a recession if the Fed continues on this path.
  • The ZAR one of the main beneficiaries following the economic data and we are likely to see more gains for the local unit.
  • The ZAR likely to remain bid in coming sessions as investors return their focus on a large interest rate differential advantage.
    • Higher than expected SA inflation supporting the call for more SARB hikes.
  • Locally, the risk remains ESKOM with Stage 8 a concern. However until that materialises/ avoided the market will focus on the Dollar,

We continue to advocate for a stronger ZAR and encourage exporters to use the forward and FX options curves to their advantage. 

  • Trade : SELL USDZAR on Rallies.

Expected Ranges:

  • USDZAR : Expect a range 17.9000-18.2000
    • Importers : 18.0000-17.9000
    • Exporters : 18.1000-18.2000
  • EURZAR : Expect a range of 19.6700-19.9100
    • Importers : 19.7500-19.6700
    • Exporters : 19.8300-19.9100
  • GBPZAR : Expect a range of 22.3100-22.5800
    • Importers : 22.4000-22.3100
    • Exporters : 22.4900-22.5800


  • USDZAR : 18.0700
  • EURZAR : 19.8100
  • GBPZAR : 22.4700



  • The SA government is preparing for the worst this winter as South Africa will certainly experience Stage 8 load shedding.
    • This means up to 12 hours of no electricity in once day.
    • Analysts  understands this is part of the projections put forward by Electricity Minister Ksogientsho Ramokgopa before Cabinet on Wednesday.
    • South Africa’s power woes are likely to worsen this winter – causing an even more devastating blow to an already ailing economy.
    • This could possibly see over 800,000 jobs shed. EWN


  • Energy manager at Business Unity SA, said that taxpayers, in the end, may have to bear the financial burden of government’s decision to extend the use of some coal-powered power stations in the country.
    • Eskom’s power supply has been increasingly inconsistent as its old power plants see daily generation breakdowns.
    • But Electricity Minister Kgosientsho Ramokgopa has decided to stall the retirement of these struggling plants in an attempt to boost supply

Home loans and bad debts

  • When the South African Reserve Bank (Sarb) turned hawkish to rein in spiralling inflation;
    • The hiking cycle has seen a cumulative 425 basis points (bps) increase in the repo rate since then,
    • making it more expensive for consumers to finance their debt.
    • Most of the pressure is being felt by those with longer-term debt such as home loans and vehicle finance.
    • Since then SA  Banks have increased bad debt provisions as interest rate spikes hit homeowners
      • There are now clearly signs that show home loan customers are struggling.
    • While the banks have been raking in good profits on the back of lending and higher interest rates,
      • consumers have been buckling under the pressure of cumulative repo rate hikes since November 2021.  Money web


  • On Thursday, the Dow fell 0.33%, the S&P 500 dropped 0.59% and the Nasdaq Composite declined 0.8%, with ten out of the 11 S&P sectors finishing lower.
    • Traders citing Tesla as the driver, and its shares weighed on the indexes.
      • The Stock losing nearly 10% after reporting lower first quarter net income and unveiling price cuts on its models.
    • US stock futures steadied on Friday after the major averages tumbled during Thursday’s regular session,
      • as investors weighed a slew of corporate earnings reports.
      • Futures contracts tied to the three major indexes were all trading near breakeven.
  • Meanwhile, Cleveland Fed Bank President Loretta Mester backed another interest rate hike to tame inflation .
    • She then emphasized the need to monitor the impact of the recent banking turmoil on the wider economy.
    • Investors now look ahead to more earnings reports on Friday, as well as US manufacturing and services PMI data to gauge the health of the economy.
  • The US 10-year US yield, eased to 3.56% from nearly one-month highs of 3.6% touched on April 19th after new data signalled an economic slowdown.
  • The Philadelphia Fed manufacturing index sank more than expected to its lowest since May 2020,
    • While initial jobless claims unexpectedly rose for the second week and continuing claims hit the highest level since November 2021.
  • Still, markets continue to price in a 25bps increase in the fed funds rate next month while a cut is now mostly expected by the end of the year.
  • Cleveland Fed president Mester joining  New York Fed President Williams, quoting that “ inflation is still too high and the central bank needs to hold policy tight”.
    • Appearances from other policymakers this week are also set to provide further hints on the policy outlook.
  • DOW  fell 79 to 33.897
  •  SP500 flat at 4,154
  •  NASDAQ added 3 to 12,157

  image: Trading economics


The US Dollar

  • The US dollar recovered to trade just under 102 on Friday and was set to finish the week higher.
    • The Buck snapping five straight weeks of losses on firm expectations that the US Federal Reserve will raise interest rates again in May.
    • Fed officials including, Bullard, Bostic, Williams and now Mester all supporting rate hikes in May as well as a higher terminal rate.
    • All of this providing support to the dollar who remains under pressure as economic data continues to disappoint and point to a slowdown in the Fed,
    • Sooner rather than later, Fx news

Asian markets lower following a negative close on Wall Street . traders remain concerned about more rate hikes that could tip the economy into recession.

  • In Japan, the Nikkei 225 rose 0.3% to above 28,700, with the former hitting eight-month highs as investors digested data showing Japan’s core inflation came in at 3.1% in March.
    • It was unchanged from February which was the lowest in five months.
    • Manufacturing activity in the country also improved in April amid further economic recovery.
  • In Australia, the ASX 200 Index fell 0.5% to 7,325, retreating further from two-month highs.
    • The heavyweight firms in the mining, energy and financial sectors leading the broad share market decline.
    • Investors also reacted to data showing Australian manufacturing activity contracted further in April, while services activity turned expansionary.
    • Mining and energy stocks tumbled on weaker commodity prices, with notable losses from BHP Group (-1.4%), Rio Tinto (-2.2%),
    • The benchmark index is on track to end the week lower, snapping three straight weeks of gains. Reuters

Crude oil

  • US WTI crude futures steadied above $77/BL on Friday but was still set to lose more than 6% this week.
    • Prices  erasing most of the OPEC-driven rally amid lingering concerns about higher interest rates.
    • Thus  slowing global growth and softening energy demand.
    • The US Federal Reserve will likely deliver another 25 basis point rate hike in May,
      • while the European Central Bank is expected to raise borrowing costs at least two more times this year.
    • BUT A key Fed report also signaled that the US economy has stalled in recent weeks, weighing on risk assets and energy demand prospects.
    • prices. Gulf energy news


  • Gold fell below $2,000 /oz on Friday and was set to decline for the second straight week.
    • Bullion prices weighed down by firm expectations that the US Federal Reserve will raise interest rates again in May.
    • A host of Fed officials supported the need for further policy tightening to bring down inflation-
      • with St. Louis Fed President James Bullard favouring a higher terminal rate of between 5.50% to 5.75%.
        • Williams of New York and Mester of Cleveland all joining the chorus.
      • The Fed and ECB are both expected to hike at their next meeting sending gold prices lower. kitco metals report

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