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Morning NOTE

21 October 2022


The ZAR continued to weaken in the face of a stronger Dollar, rising yields and general Risk off sentiment


The Rand traded to a weakest level of 18.3500 after the Dollar continued to trade higher on the back of hawkish Fed sentiment.

  • The ZAR however performing admirably when compare to the Japanese Yen.
    • The Yen trading above 150 vs the Dollar for the first time since August 1990.
    • The currency losing nearly 30% against the dollar in 2022  due to widening policy divergence.
      • The Bank of Japan committed to ultra-easy monetary policy to support the economic recovery,
      • while the Federal Reserve aggressively raised interest rates to combat surging inflation.
      • The likelihood of a BOJ intervention increasing as authorities remain irritated by the Yen’s devaluation.
  • Driver remain : The US 10YT yield trading at 4.25%, the SP500 at 3650 and the ZAR opening at 18.3400,
    • All pointing to another session of RISK OFF,
    • For all the talk of a FED pivot (i.e. slower rate hikes or cuts in 2023), Fed officials have repeatedly pushed back against this notion.
    • With markets pricing in 2 x 75 bps hikes for the remainder of the year.
  • Against the back drop, expect Risk to remain under pressure and a weaker ZAR.

Significant Market Data:

  • Nothing of significance, although the session once again dominated by Fed speakers.


  • The ZAR continues to trade weaker, as global yields continues to rise.
    • It is important to note, that markets are not even considering the disaster that is ESKOM,
      • And this is purely on the back of US rate policy.
    • The FED looking for a neutral rate of 4.75% for Fed funds, that is currently at 3.25% ( so another 150bps).
      • NB: This is all inflation dependent and a decline could arrest this move and we could see a Dollar reversal.
    • Fed speakers continue to push for higher rates and the ZAR likely to remain under pressure in this environment.
  • Trade today : BUY  USDZAR on dips.

Expected Ranges

  • USDZAR :  Expect a range 18.1000-18.5200
    • Importers 18.2400-18.1000
    • Exporters 18.3800-18.5200
  • EURZAR :  Expect a range of 17.8700-17.6700
    • Importers 17.8700-17.6700
    • Exporters 17.9400-18.1400
  • GBPZAR :  Expect a range of 20.4000-20.6400
    • Importers 20.4800-20.4000
    • Exporters 20.5600-20.6400


  • USDZAR 18.3400
  • EURZAR 17.9100
  • GBPZAR 20.5200


  • Water crises

    • A message from Rand Water indicates that it is already throttling water supply in Johannesburg by 30%, saying residents are ‘using too much’.
      • But residents have fired back, arguing that the dams are almost full and asking who really is to blame.
    • MTN told Telkom that it ended the talks on Tuesday after it couldn’t get assurances around exclusivity, a representative for Telkom said in response to Bloomberg questions.
    • Telkom plunges over 22% after MTN walks away
    • While MTN’s share price closed almost 4% down on Wednesday, 19 October. MONEYWEB


  • Stocks traded lower on Thursday, as the Dow shed 0.3%, the S&P 500 dropped 0.8% and the Nasdaq Composite lost 0.61%, with US stocks posting their second day of losses.
    • The moves came as Treasury yields surged higher on expectations that the Federal Reserve will need to stay aggressive to bring down inflation.
  • US stock futures extended declines on Friday, with the Nasdaq 100 down nearly 1%, while S&P 500 and Dow futures lost at least 0.2%.
    • Snap shares plunged 26% in late trading after missing third quarter revenue expectations and offering weak revenue guidance for the fourth quarter.


  • The US 10-year yield, reached the 4.3% mark, the highest since June 2008. Traders remain concerned about inflation and fears that the Federal Reserve would need to stay aggressive.
    • Philadelphia Fed President Patrick Harker was among the latest policymakers to echo the US central bank’s intention to tighter monetary policy.
      • He said : interest rates will likely rise to “well above” 4% this year and then hold them at such restrictive levels.
    • also, the IMF now expects the Euro area to grow at the weakest pace since 2001.
      • The only other periods were the global financial crisis and the acute stage of the coronavirus pandemic.
      • Traders indicating the ongoing energy crisis, the war in Ukraine, and record inflation as a significant risk for the region.
      • Germany’s 10-year Bund yield, the European benchmark, rose towards 2.5%, closing in on its highest level since August 2011. Reuters


  • The Dow  fell 90 points to 30,333
  • The Sp500 fell 29 to 3,665
  • The Nasdaq  fell 65 to 10,614


  • Asian markets lower following another weak session on Wallstreet.

      • In Japan, the Nikkei 225 fell 0.43% to close at 26,891, declining for the second session as investors assessed data pointing to broadening inflationary pressures in Japan.
        • In presenting a challenge to the central bank which is increasingly pressured to adjust its policy of ultra-low interest rates.
        • Japanese shares also tracked losses on Wall Street overnight driven by surging Treasury yields and hawkish remarks from US Federal Reserve officials.
          • The Nikkei declined for the second straight week, losing 0.74% and 0.85%, respectively.
          • Also, sentiment remained poor after the YEN dropped to the lowest level since August 1990.
      • In Australia, the  ASX 200 Index dropped 0.8% to close at 6,677 on Friday, extending losses from the previous session and tracking a weak Wall Street session overnight.
        • Stocks have come under pressure from surging global bond yields as investors proceeded to raise their projected peaks for US rates amid persistent inflationary pressures.
        • The benchmark index lost 1.21% this week, for its second straight weekly decline. Reuters
  • The US dollar edged above 113 on Friday, supported by surging Treasury yields as investors proceeded to raise their projected peaks for US rates amid persistent inflationary pressures.
    • A chorus of hawkish remarks from Federal Reserve officials also underpinned the currency, “well above” 4% this year and hold them at restrictive levels for a while.
    • Markets are currently priced for another 75 basis point rate hike next month.
    • The dollar’s strength was seen across the board, with some of the most pronounced buying against risk-sensitive currencies such as the British pound and New Zealand and Australian dollars.
    • The greenback also strengthened slightly against the euro, while scaling 32-year highs versus the yen. Fx news
  • Crude Brent steadied near $92/bl on Friday and were set to end the week little changed after getting whipsawed throughout the period by conflicting supply and demand factors.
    • The international oil benchmark remains down nearly 30% since June.
    • Traders citing, aggressive monetary tightening by major central banks to quell surging inflation and mounting recessionary risks gripped commodity markets.
    • Oil prices also came under pressure earlier this week after the US announced that it would release 15 million barrels of oil from its emergency reserves to bring down high gasoline prices. Gulf Energy
  • Gold remain below $1,630/oz on Friday, closing in on the lowest levels since April 2020.
    • They weighed down by a strong dollar and surging Treasury yields amid expectations that the US Federal Reserve will need to stay aggressive to bring down inflation.
      • A surprise fall in US weekly jobless claims supported such a view, as well as a chorus of hawkish remarks from Fed officials.
      • Philadelphia Fed President Patrick Harker said the central bank is likely to raise rates to “well above” 4% this year and hold them at restrictive levels for a while.
      • Gold also continued to underperform as a safe-haven asset despite persistent inflationary pressures and mounting risks of a global recession,
      • as rising US interest rates drove investors to seek shelter in the dollar.
      • The metal is down about 1% so far this week, on track to notch its second straight weekly decline. Kitco metals

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