The ZAR remained range bound ahead of today’s SA Budget and the FOMC minutes.
The Rand remained range bound on Tuesday, ahead of key event risk events today.
- After briefly flirting below R18/$ on Monday, Traders stepped in to acquire dollars ahead of the FOMC and Budget speech.
- Markets adopting a RISK OFF tone ahead of the FOMC minutes as the SP500 once again got hammered.
- The broader index dropping 2% to trade at 3997, below the psychological 4,000 level.
- In addition, the US10YT spiked to 3.94%, as fears of a 50 bps hike by the FED in March grows stronger and stronger.
- More hawkish comments after Cleveland Fed President Loretta Mester said she saw a “compelling economic case” for another 50 basis point rate hike.
- Last week, St. Louis Fed President James Bullard also stated he would not rule out backing a half-percentage point increase at the Fed’s March meeting.
- Investors now look ahead to the latest FOMC meeting minutes, more Fed commentary and the Fed-preferred inflation gauge of PCE price index this week.
- The Dollar continues to be well supported in this environment, and clues from the FOMC minutes are eagerly awaited on the path forward.
- Investors also awaiting the US GDP and US PCE data to provide insight into the health of the world’s largest economy.
- In SA markets also eagerly await the SA budget speech.
- Investors focusing on fiscal responsibility and plans to fund any increases in social spending.
- In addition we are also focused on the on going energy crises , with the spot light on funding requirements needed to ease, help end the crises.
- We expect some ZAR weakness leading into the budget as the FX market remains the easiest proxy hedge for Bond portfolios.
- MAJOR EVENT RISK TODAY: Minister of Finance, Mr Enoch Godongwana, will provide details of spending and revenue collection proposals.
- He will deliver the 2023 Budget Speech to the National Assembly in the Cape Town City Hall at 14.00.
Data this week
- 14H00 : SA ANNUAL BUDGET SPEECH BY FINANCE MINISTER ENOCH GODONGWANA
- 21h00 : US FOMC MINUTES
- 11H30 : SA PPI FORECAST 12.8% VS 13.5% YOY
- 12H00 : EU INFLATION RATE FORECAST 8.6% VS 9.2% YOY
- 15H30: US GDP GROWTH 2.9% EXPECTED VS 3.2% PREVIOUS
- 17h50 : FED BOSTIC SPEECH
- 15H30 : US PCE PRICE 4.8% EXPECTED VS 5% PREVIOUS
- 15H30 : US CORE PCE PRICE 4.3% EXPECTED VS 4.4 % PREVIOUS
Market Movement Today:
- The ZAR remained in narrow range, due to uncertainty ahead of Wednesday’s FOMC minutes and SA budget speech.
- The local unit trading to the weaker side of the range, after RISK OFF FRENZY hit markets.
- The US10YT spiking to 3.94%, within touching distance of the 4% level as well as the SP500 falling below 4000.
- The Dollar remains well supported as rhetoric for higher rates continues to concern investors.
- Traders as always preferring to err on he side of caution, resulting in an rapid fire exit from risk assets.
- This morning we opening weaker, and a break of 18.3000 supports a move to 18.5000.
- NB : Bond traders continue to hedge positions using the FX markets as a proxy.
- The ZAR usually under pressure ahead of key policy decisions.
- The theme however remains a Hawkish Fed with various governors calling for higher rates to combat inflation.
- Data this week the FOMC, US GDP and US PCE.
- All of this ensuring a dollar well supported above 104, the USDZAR ABOVE R18/$.
- Sentiment remains RISK OFF, ahead of the key policy decisions.
- Trade : short term importers to exact cover and exporters to utilise both FX options and FEC’s.
- SHORT TERM IMPORTS ARE ENCOURAGED TO LOOK AT DERIVATIVES TO IMPROVE RATES FOR NEAR TERM INVOICING.
- USDZAR : Expect a range 18.2000-18.4400
- Importers 18.2400-18.2000
- Exporters 18.3600-18.4400
- EURZAR : Expect a range of 19.4000-19.6400
- Importers 19.4400-19.4000
- Exporters 19.5600-19.6400
- GBPZAR : Expect a range of 22.0300-22.4200
- Importers 22.0800-22.0300
- Exporters 22.2900-22.4200
- USDZAR 18.1000
- EURZAR 19.3000
- GBPZAR 21.7800
All About The Budget !!!
ESKOM and the budget
- All eyes on Godongwana as Eskom debt grows to R422bn
- Experts say conditions crucial to debt relief plan
- Eskom has painted itself into a debt corner and the plan Finance Minister Enoch Godongwana is expected to announce on Wednesday.
- The plans will look to restore its financial viability, and will be one of the key factors of his budget speech.
- A lack of detail around the debt plan for Eskom would be a significant disappointment against the backdrop of anticipation building around a solution to load shedding.
- This was according to Old Mutual Investment Group chief economist Johann Els. Moneyweb
- Wits Business School professor, Jannie Rossouw, said that he did not believe that there was room for higher taxes.
- His comments ahead of when National Treasury tables the budget in Cape Town on Wednesday afternoon.
- Rossouw is among economists that have weighed in on how Finance Minister Enoch Godongwana is expected to balance national spending priorities and the country’s limited resources. EWN
- Public sector workers to go on ‘full-blown indefinite strike’
- Unions will submit strike notices to the employer on 22 February, the day that Finance Minister Enoch Godongwana is expected to deliver the 2023 SA budget. Ewn
SA and RUSSIA
- In what would surely raise alarm bells in the west .
- Russia’s warship with hypersonic missiles arrives for drills with SA, China
- The beginning of the exercises coincides with the first anniversary of the Russian invasion of Ukraine.
- This after the Americans pledged to increase support for Ukraine in the war against Russia. Money Web
- On Tuesday, the Dow fell 2.06% and turned negative for the year.
- In addition, the S&P 500 and Nasdaq tumbled 2% and 2.5%, respectively.
- Investors fretted about the prospect that the Fed will continue hiking rates to tame inflation.
- Major US retail giants warned the market about economic uncertainties.
- This morning, US stock futures after Tuesday’s bloodbath after coming under pressure from rising Treasury yields as investors price in higher interest rates. Bloomberg
- The yield on the US 10-year, nearly reached 4%, a level not seen in three months, as investors adjust their portfolios for a higher terminal rate.
- Recent economic data showed the sharpest increase in producer prices in seven months in January.
- This slew of data followed a blockbuster retail sales report and a hotter-than-expected CPI reading.
- Speeches from St. Louis Fed President James Bullard and his Cleveland’s Loretta Meister also supported the idea of 50 basis points.
i.e. That the US central bank will have to continue to raise interest rates to cool the economy. CNBC
- The Dow declined 697 to 33,129
- The SP500 declined 81 points to 3,997
- The Nasdaq fell 297 to 11,492
: image: Trading economics
- The dollar index firmed up above 104 on Wednesday, holding near its highest levels in six weeks.
- The buck supported by rising treasury yields as stronger-than-expected US economic data and hawkish remarks from Federal Reserve officials buoyed the currency.
- Latest data pointed to still elevated inflationary pressures and a robust jobs market in the US, supporting the case for further monetary tightening.
- Cleveland Fed President Loretta Mester said she saw a “compelling economic case” for another 50 basis point rate hike.
- This was backed up by St. Louis Fed President James Bullard also stated he would not rule out backing a half-percentage point increase at the Fed’s March meeting.
- Investors now look ahead to the latest FOMC meeting minutes, more Fed commentary and the Fed-preferred inflation gauge of PCE price index this week. FX news
Asian markets lower following a negative session in NEW YORK.
- In Japan, the Nikkei 225 dropped 1.34% to close at 27,104, extending losses from the previous session.
- The index tracking sharp losses on Wall Street overnight, as investors fretted about the prospect that the Fed will continue hiking rates to tame inflation.
- Investors also digested data showing the sentiment of Japanese manufacturers remained gloomy in February.
- This as a slowing global economy held back the country’s recovery from the pandemic slump.
- Technology stocks led the retreat, with sharp losses from SoftBank Group (-2.2%).
- In Australia the ASX 200 dropped 0.3% to close at 7,315, sliding to its lowest levels in six weeks. The index also tracking sharp losses on Wall Street overnight.
- The same theme, as investors nervous about the prospect that the Fed will continue hiking rates to tame inflation.
- Investors also digested data showing the leading economic index in Australia remained negative for the eight consecutive month in January.
- Notable losses were seen from index heavyweights including Commonwealth Bank (-2.3%), Fortescue Metals (-1.8%). Reuters
- Brent crude oil held recent declines to trade around $83/bl and remaining under pressure ahead of the release of the Federal Reserve’s latest minutes.
- The minutes likely to provide clues on the trajectory of interest rate hikes in the US.
- Keeping a floor under prices, Russia has recently announced plans to cut output by 500,000 barrels a day in March.
- It is about 5% of total production in retaliation to Western sanctions.
- The USA plans to release more crude oil from its strategic reserve stock piles to counter the Russian cut in production,
- Still, the US plans to impose more penalties on Russia for the invasion of Ukraine, with measures that could target Russia’s energy sector. Gulf Energy news
- Gold remained below $1,840/oz, hovering near its weakest levels in 7 weeks.
- Bullion feeling the pinch on the back of rising US treasury yields as well as a surging Dollar.
- Recent stronger-than-expected US economic data and hawkish remarks from Federal Reserve officials weighed on the metal.
- Some Fed officials indicated last week that they were open to a bigger 50 basis point rate hike at the central bank’s March meeting.
- Investors now look ahead to the FOMC meeting minutes, more Fed commentary and the Fed-preferred inflation gauge of the PCE price index this week. Kitco metals report