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GOOD MORNING
The ZAR weakened in early Monday trading on the back of investor concerns around further monetary tightening and growing Geo-political tensions.
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SUMMARY
- The Rand weakened to 18.1600 in early Monday trading, after breaching the R18/$ level on Friday.
- The local unit following other risk assets, who all declined ahead of another “nervous” Fed meeting next week.
- The Fed is expected to hike 25 bps, but the market concerns are around the language at the follow up press event, and the expectations for the June meeting.
- After a less that outstanding US earnings season, markets are also focussing on European bank earnings, with Deutsche Bank the stand out.
- On Friday, US business activity accelerated to an 11-month high in April.
- The data easing concerns that the world’s largest economy is on the brink of a recession,
- but throwing cold water into expectations that the central bank will soon end its historic tightening campaign.
- The result a rerating of risk assets with Gold particularly selling off;
- Reaching $1975/oz
- The 10YT however hovering around 3.53% as uncertainty continues to grip markets,
- who’ve priced in a 25bps increase in the fed funds rate next month, while a cut is likely by the end of the year.
- Rapid ZAR gains likely to be capped in the days leading up to the FOMC. On the 3rd May 2023.
- And we can expect a test on both sides of the Range 18.3000-18.0000.
- In addition we have the US PCE data release on Friday, that’s also the Fed’s preferred inflationary gauge.
Data This week
Monday
- 16h30 Dallas Fed Manufacturing index previous -15.7 expected -17
Tuesday
- 15h00 US Case-Shiller Home Price YOY 0.1% expected vs 2.5% expected
- 16h00 US NEW HOME SALES 1.1% EXPECTED MOM VS 1.1% PREVIOUS
WEDNESDAY
- 11H30 SA INFLATION PPI YOY 12.8% EXPECTED VS 12.2% EXPECTED
- 14H30 US DURABLE GOODS +0.8% EXPECTED VS -1% PREVIOUS
THURSDAY
- 14H30 US GDP 2% EXPECTED VS 2.6% PREVIOUS QoQ
- 14H30 US WEEKLY JOBLESS CLAIMS 250K VS 245K PREVIOUS
FRIDAY
- 11H00 EU GROWTH RATE 1.4% YOY EXEPCTED VS 1.8% PREVIOUS
- 14H00 SA BALANCE OF TRADE R-22BN EXPECTED VS +R16BN PREVIOUS
- 14H30 US CORE PCE 4.5% EXPECTED YOY VS 4.5% PREVIOUS
- 15H45 US CHICAGO PMI 43.5 VS 43.8 PREVIOUS
Market Movement Today:
- The Rand weakened in early trading ahead of a week filled with uncertainty.
- Next week we have key US FOMC meeting with the fed widely expected to raise 25 bps.
- Markets remained concerned about the language and if there’s a risk for another hike in June.
- Traders paring bullish bets on risk assets, resulting in a weaker ZAR in early trading.
- In addition, we have more inflation data due this week. headlined by SA PPI
- And also US GDP growth.
- Both likely to be market movers as central bank prepare another round of rate hikes to combat inflation.
- The threat of higher inflation also affecting the entire commodity complex and this will weigh on the ZAR.
- Gold, oil and precious metals all lower on the threat of more rate hikes.
- With commodity exporters Selling their goods for less Dollars and thus affecting SA’s Trade Balance.
- Longer term we continue to advocate for a stronger ZAR and encourage exporters to use the forward and FX options curves to their advantage.
- Trade : TRADE THE RANGE 18.0000 BUY / 18.3000 SELL
Expected Ranges:
- USDZAR : Expect a range 17.9400-18.2400
- Importers : 18.0400-17.9400
- Exporters : 18.1400-18.2400
- EURZAR : Expect a range of 19.7800-19.9900
- Importers : 19.8500-19.7800
- Exporters : 19.9200-19.9900
- GBPZAR : Expect a range of 22.4800-22.4100
- Importers : 22.4800-22.4100
- Exporters : 22.5500-22.6200
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OPENING RATES
- USDZAR : 18.1200
- EURZAR : 19.9000
- GBPZAR : 22.5200
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SOUTH AFRICA
Cape Rain
- Disaster risk management authorities will remain on high alert as rain continues to pummel parts of the Cape.
- Residents, especially in low-lying areas and informal settlements, are at risk of being affected by the constant rains.
- The City of Cape Town’s Charlotte Powell said that no major incidents had been reported thus far.
SARS
- The recent draft public notice issued by SARS proposes that Solar Installers must report taxpayer information.
- This appears very much part of the SARS drive to ensure compliance and embrace technology for taxpayer data collection.
- This new announcement considers imposing a requirement on the solar installer to report taxpayer and solar installation information,
- where the solar installation is affected at a domestic residence.
GLOBAL MARKETS
Stocks
- US stock futures eased on Monday as investors cautiously awaited earnings reports from big technology companies this week.
- Futures contracts tied to the three major indexes were all down about 0.1%. Last week, the Dow fell 0.23%, the S&P 500 shed 0.1% and the Nasdaq Composite dropped 0.42%.
- Those moves came as investors digested mixed corporate earnings results, while grappling with heightened economic uncertainties and the prospect of further interest rate hikes.
- Big tech firms slated to report quarterly results this week include Microsoft, Alphabet, Amazon and Meta Platforms.
- Other major companies are also on deck, such as Exxon Mobil, Visa and Eli Lilly.
- On the data front, traders await GDP numbers for the first quarter, as well as April’s consumer sentiment data.
Bonds
- The 10-year US Treasury consolidated around 3.6% as investors parsed through new economic data while assessing the impact of the Federal Reserve’s rate-hiking path.
- US business activity accelerated to an 11-month high in April, easing concerns that the world’s largest economy is on the brink of a recession.
- THUS throwing cold water into expectations that the central bank will soon end its historic tightening campaign.
- It contrasted with data released on April 20th which showed the Philadelphia Fed manufacturing index sank more than expected,
- while initial jobless claims unexpectedly rose for the second week and continuing claims hit the highest since November 2021.
- Money markets priced in a 25bps increase in the fed funds rate next month, while a cut is likely by the end of the year.
On Friday
- DOW added 22 to 33,808
- SP500 added 3 to 4,133
- NASDAQ added 12 to 12,072
 image: Trading economics
OVERNIGHT HEADLINES
The US Dollar
- The dollar index steadied around 101.8 on Monday as investors continued to assess the outlook for the US economy and Federal Reserve monetary policy.
- Data released on Friday showed that US business activity expanded the most in nearly a year in April, bolstering the case for further monetary tightening.
- Investors now look ahead to first quarter US GDP numbers and April consumer sentiment data this week for more clues about the state of the economy, among others.
- The Fed is widely expected to deliver another 25 basis point interest rate hike in May, though traders will be watching for guidance on the future rate path.
- The European Central Bank is also expected to raise rates further, though the market remains split on whether it will increase rates by a quarter- or half-percentage point next month. Fx news
Asian markets
- Asia markets mixed ahead of next week’s FOMC meeting as investor uncertainty continues to increase.
- In Japan, the Nikkei 225 rose 0.1% to close at 28,593, erasing losses from the previous session as investors look ahead to the Bank of Japan’s monetary policy meeting this week.
- It will be the first to be led by new BOJ governor Kazuo Ueda.
- Also, investors remain cautious amid heightened global economic uncertainties and the prospect of further interest rate hikes.
- Notable gains were seen from heavyweight stocks such as SoftBank Group (1.2%), Nintendo (1.3%), and Hitachi (0.6%). Reuters
Crude oil
- US WTI crude fell below $77 per barrel on Monday.
- PRICES extending a nearly 6% DROP from last week, weighed down by the prospect of further interest rate hikes that could hurt global economic growth and future energy demand.
- The US Federal Reserve will likely deliver another 25 basis point rate hike in May, while the market is split on whether the European Central Bank will raise rates by a quarter- or half-percentage point next month.
- Investors now look ahead to US first-quarter GDP numbers this week to gauge the health of the world’s largest economy, after a key Fed report signalled that the US economy has stalled in recent weeks.
- The US oil benchmark has also given back most of the OPEC-driven rally, though traders remain cautious ahead of the group’s production cuts next month.
- Elsewhere, hopes for a rebound in Chinese demand continued to support the market, as the country’s first-quarter GDP numbers pointed to a stronger-than-expected growth. Energy news
Gold
- Gold prices were little changed on Monday, hovering around $1,980 an ounce, as market participants prepare for the releases of US Q1 GDP reading and consumer confidence data for April later this week.
- On Friday, gold tumbled around 1%, falling from a 13-month high of $2,040 hit on April 13th, as the dollar index rose toward 102 following surveys that showed US and eurozone business activity gained momentum in April,
- In addition, several Fed officials supported the need for further policy tightening to bring inflation down.
- Also, some ECB policymakers called for more rate hikes in upcoming meetings to tame the record-breaking core inflation.
- Higher rates continue to affect prices. Kitco metals
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