The ZAR losing nearly 2% on the back of Dollar rebound and more Central bank rate rises.
The Rand lost ground for in Thursday trading following a surprise rate hike by the Bank of England (50 vs 25 expected).
- The local unit lower by 3% or nearly 55 cents, to reach 18.6700, after Fed chair Powell reiterated the need for higher rates to bring down inflation.
- Across the pond, UK BOE governor Andrew Bailey, expressed concerns about the high levels of inflation and said more is needed to bring it down.
- The BOE raising rates by 50 bps after UK inflation surprised the markets to the topside with a 8.7% print earlier in the week.
- UK rates now at its highest since the financial crises of 2008.
- In addition, other major European central banks from Switzerland and Norway also raised interest rates.
- Powell’s testimony that the US FOMC remains unanimous in its assessment that higher rates are needed to combat inflation.
- The comments causing a rebound in the Dollar as risk assets took a backseat. The SP500 as well as Gold all trading lower.
- The overwhelming theme remains “Higher interest rates for longer “, and this WILL BE DOLLAR SUPPORTIVE.
- Today we have more Fed speakers commenting on monetary policy with two of the leading protagonists for higher rates,
- BULLARD AND MESTER speaking later in the session.
Data This week
- 11H15 : FED – BULLARD SPEAKS
- 14H00 : FED BOSTIC SPEAKS
- 15H45 : ECB – PANETTA SPEAKS
- 15H45 : US MANUFACTURING PMI’S 48.3 EXPECTED VS 48.4 PREVIOUS
- 15H45 : US SERVICES PMI’S 54 EXPECTED VS 54.9 PREVIOUS
- 19H40 : US FED MESTER SPEAKS
- 15H15 : US FED WILLIAMS SPEAKS
Market Movement Today:
- Rand losses continued with the local unit losing 2% to reach 18.6700 after a Dollar rebound.
- The US currency storming to the front of the queue after major Central Banks all turned hawkish.
- Powell continued his testimony to the US Senate Banking committee, but the catalyst appears to have been the surprise rate hike by the Bank of England.
- The BOE surprised markets with a 50 bps rate hike vs 25 bps expected.
- Governor Bailey followed up the decision, expressing concerns about the high level of inflation as well as the Bank’s determination to fight inflation.
- In addition, Powell mentioned that the US FOMC remains in agreement that interest rates need to rise to bring inflation down to the 2% level.
- The ZAR losing ground, with the unit finally breaking through the 18.4500 (USDZAR resistance) level.
- Following the open at 18.5800 the unit trading to 18.6500 at the European open.
- Interbank traders indicating panic buying from importers helping the move, for those who were hoping to see below R18/$.
- ZAR bulls booking profits ahead of more testimony from Jerome Powell as well as today’s Bank of England rates decision.
- Recall yesterday’s technical note.
- The ZAR has failed 4 times at the 18.4500 level and a break above opens up 18.5500 – 18.6700.
- A weekly close above 18.5000 regarded as significant and we can target 18.8000-18.9000.
- On the downside 18.4500 now becomes Dollar support, and a break below is needed for the ZAR to resume its strengthening journey.
Markets this morning
- USDZAR 18.5800
- DOLLAR 102.100
- EURUSD 1.0878
- SP500 4,365
- GOLD 1910
- US10YT 3.80%
- Trade : BUY USDZAR (i.e. SELL ZAR)
- USDZAR : Expect a range 18.3000-18.7800
- Importers : 18.4600-18.3000
- Exporters : 18.6200-18.7800
- EURZAR : Expect a range of 20.1000-20.4900
- Importers : 20.2300-20.1000
- Exporters : 20.3600-20.4900
- GBPZAR : Expect a range of 23.4200-23.7800
- Importers : 23.5400-23.4200
- Exporters : 23.6600-23.7800
- USDZAR : 18.5800
- EURZAR : 20.3100
- GBPZAR : 23.6300
- ANC secretary-general Fikile Mbalula said that there were messages doing the rounds of expelled former secretary-general Ace Magashule calling on ANC structures to leave the party.
- African National Congress (ANC) secretary-general Fikile Mbalula has accused his predecessor of mobilising party members to join a new party.
- Magashule was booted from the party for failing to apologise to the ANC after he unanimously wrote a letter of suspension to party president, Cyril Ramaphosa. SOURCE EWN
SA RUSSIA VISIT
- Government has closed ranks, defending President Cyril Ramaphosa’s security chief, Wally Rhoode.
- It comes as criticism continues to mount over the recent African peace mission to Russia and Ukraine.
- Rhoode is accused of flouting security protocol when a chartered plane with Ramaphosa’s security detail was grounded in Poland and turned back.
- The Democratic Alliance (DA) and FF Plus are among parties that now want Rhoode to be hauled before Parliament to account for the diplomatic standoff in Warsaw. SOURCE News24
Equities lower across the board on the back of aggressive Central bank tightening
- On Thursday, the Dow inched down 0.01%, while the S&P 500 and Nasdaq Composite gained 0.37% and 0.95%, respectively.
- US stock futures declined on Friday after the major averages ended mixed during Thursday’s
regular session, as investors continued to assess the economic and monetary policy outlook.
- Futures contracts tied to the three major indexes were all down about 0.4%.
- Real estate, energy and financial stocks mostly declined.
- In day 2 of his testimony before Congress, Federal Reserve Chair Jerome Powell emphasized that FOMC members are currently in a broad consensus that interest rates must continue to rise.
- Other monetary authorities also remained hawkish, with the Bank of England, Norges Bank and Swiss National Bank raising interest rates further.
Yields rose across the board after the Bank of England surprised markets with a larger than expected rate hike.
In the USA
- The yield on the US 10-year Treasury was trading around 3.8%, the highest in 3 months while the 2-year yield hit inched toward 4.8%, approaching the 15-year high of 5% hit in early March.
- Investors are expecting the interest rates to rise further and remain elevated for longer.
- During the testimony to Congress, Fed Chair Powell reinforced last week’s message that interest rates will need to rise further this year to fight high inflation.
- Powell also said two more rate hikes this year was “a pretty good guess”.
- Elsewhere, central banks in the UK and Norway hiked rates by 50bps, more than expected.
In the UK
- United Kingdom 10Y Bond Yield was 4.37 percent on Friday June 23, according to over-the-counter interbank yield quotes for this government bond maturity.
- The Bank of England raised its policy interest rate by 50 basis points to 5.0% during its June meeting, marking the 13th consecutive hike.
- This decision pushed borrowing costs to their highest level since the 2008 financial crisis, all in an effort to combat persistent inflation.
- Policymakers have also pledged to deliver further rate hikes if the ongoing inflationary pressures persist.
- Latest data revealed that British inflation unexpectedly held steady at 8.7% in the year to May, remaining significantly above the central bank’s target of 2%.
- Furthermore, the core inflation rate accelerated to a 31-year high of 7.1%. |source: Bank of England
- DOW -4.81 to 33,946
- SP500 +16 to 4,381
- NASDAQ +128 to 13,630
image: Trading economics
Eastern markets lower on the back of investor concerns as global central banks all turn hawkish.
- In Japan, the Nikkei 225 Index fell 1.45% to close at 32,781, retreating further from 33-year highs.
- Investor sentiment took a hit this week after US Federal Reserve Chair Jerome Powell indicated the need to tighten policy further to bring down inflation.
- Also, investors digested data showing Japan’s core inflation slowed to 3.2% in May, but remained above the central bank’s 2% target for the fourteenth straight month.
- Notable losses were seen from index heavyweights such as Mitsubishi Corp (-4.4%), Toyota Motor (-1.8%) and Sony Group (-2%).
- In Australia, ASX 200 Index plunged 1.34% to 7,099 on Friday, sliding for the third consecutive session.
- The index closing at its lowest level in almost a month as investor sentiment took a hit this week after Jerome Powell indicated the need to tighten policy further to bring down inflation.
- Investors also digested data showing Australian manufacturing activity contracted for the fourth straight month in June, while services activity slowed.
- Energy stocks led the retreat amid a sharp drop in oil prices overnight, with sector leaders Woodside Energy and Santos losing 4.7% and 4.6%, respectively. |source : Reuters
Oil prices lower after Central banks confirm their hawkish stance for monetary policy in 2023.
- US WTI crude futures fell below $69/bl on Friday and were on track to lose more than 4% this week .
- Traders citing further monetary tightening and hawkish messaging from major central banks hurt the outlook for the global economy and energy demand.
- On Thursday, the BOE and the Norway Bank raised interest rates by a bigger margin than most analysts expected, while the Swiss National Bank continued to tighten policy.
- Jerome Powell also told the US Congress that further rate hikes will be necessary to bring down inflation.
- Prices remain supported after Saudi Arabia pledged a new voluntary oil output cut of 1 million barrels per day for July, which could be extended further.
- Saudi Energy Minister Prince Abdulaziz bin Salman unveiled the reduction in a statement.
- The decision was made in coordination with some of the OPEC+ members, according to the report. |source : Gulf News
Precious metals lower on the back of larger than expected rate hikes from major central banks.
- Gold under pressure with prices fast approaching $1900/oz.
- Prices near $1,910 an ounce on Friday, hovering at its lowest levels in three months and on track to lose more than 2% this week.
- Traders citing aggressive monetary tightening and hawkish messaging from major central banks weighed on the metal.
- In his testimony to Congress, Fed Chair Jerome Powell emphasized that FOMC members are currently in a broad consensus that interest rates must continue to rise as inflation remains too high.
- Markets are currently priced for another 25 basis point rate increase from the Fed in July.
- Meanwhile, the Bank of England and the Norges Bank both delivered a larger-than-expected 50 basis point rate hike on Thursday, while the Swiss National Bank raised rates by 25 basis points.
- Higher interest rates raise the opportunity cost of holding non-yielding bullion, denting its appeal. |source : Kitco
The Dollar rebounded after Central banks sounded the alarm, that higher rates are needed to combat inflation .
- The US dollar index rose above 102.5 on Friday, extending gains from the previous session.
- Traders citing aggressive monetary tightening and hawkish messaging from major central banks hurt the global economic outlook, prompting investors to rush for safer assets like the dollar.
- Fed Chair Jerome Powell said in his testimony to Congress that further interest rate rises are likely ahead if the economy maintains its current trajectory.
- Meanwhile, the Bank of England delivered a larger-than-expected 50 basis point rate hike on Thursday, stoking fears of an economic slowdown in the UK.
- The Norwegian Bank and the Swiss National Bank also raised rates by 50 bps and 25 bps on Thursday, respectively, while signaling further tightening. Source : Trading economics