The ZAR strengthened after a benign Q4 US GDP report that printed lower than expected.
The Rand joined markets in a relief rally after US GDP disappointed markets with a lower than expected data print.
- The US economy expanded an YOY 2.7% on quarter in Q4 2022, slightly below 2.9% in the advance estimate.
- Consumer spending rose 1.4%, the least since Q1 2022 and below 2.1% in the advance estimate.
- Spending on goods went down 0.5%, revised from an initial estimate of a 1.1% rise and
- spending on services went up 2.4%, also below 2.6% in the advance estimate. source: U.S. Bureau of Economic Analysis
- The local unit gaining more than 1% following the data release.
- Markets priming for a higher number that would effectively support the Fed’s hawkish narrative.
- But , It appears the lagging effect of monetary tightening continues to show its head and something officials are choosing to ignore.
Expectations vs reality?
- Markets continue to miss expectations priced into the data (illustrating how poor economists really are at predicting)
- i.e. transitory in 2020 to 2021 and most recent glaring data misses.
- The result are extremely volatile price actions .
- Inflation continues to trend downwards
- The job market remains tight, but weekly claims remain around 200k
- US GDP was lower than previously recorded, indicating a slowdown in the economy .
- A recession remains priced into the 2v10’s treasury spread.
- The GDP miss, reflected in the US 10YT yield declining to 3.86% from previous 3.95%
- The Dollar index also lower at 104.20
- And the SP500 back above 4000
- The ZAR also off its weakest levels to hover around the 18.2000 mark.
Today we look forward to the Fed’s preferred inflationary gauge, the PCE (personal consumption expenditure).
A lower number likely to slow down the risk asset selloff.
Data this week
- 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 on opening stronger this Friday morning, following a benign overnight trading session,
- The local unit hovering around the 18.2000 level, with recent economic(risk) events in favour of the local unit.
- The SA budget was favourably received by the markets
- US GDP was softer than expected.
- All of this against last week’s slew of inflationary data.
- Today’s PCE like to create more volatility and a miss to the topside likely to cause more market turbulence.
- The ZAR off its weakest levels but remaining vulnerable to US inflation data.
- The fed remains committed to raise rates and bring down inflation back to 2%.
- Trade : remains for 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 18.1400-18.2900
- Importers 18.1900-18.1400
- Exporters 18.2400-18.2900
- EURZAR : Expect a range of 19.2200-19.4000
- Importers 19.2800-19.2200
- Exporters 19.3400-19.4000
- GBPZAR : Expect a range of 21.7900-22.0000
- Importers 21.8600-21.7900
- Exporters 21.9300-22.0000
- USDZAR 18.2200
- EURZAR 19.3100
- GBPZAR 21.8900
- Following the dramatic exit of former CEO André de Ruyter, Eskom has appointed Calib Cassim as its interim group CEO.
- Cassim served as the embattled power utility’s chief financial officer in November 2018.
- Several senior ANC leaders are fuming following former Eskom CEO Andre de Ruyter’s scathing criticism of the party and placing it at the centre of corruption claims at the entity.
- De Ruyter’s sit-down with e-TV’s Annika Larsen has continued to cause upset for many in the governing party;
- including those who felt they had elevated him to the position of the power producer’s saviour.
More bad weather
- Parts of South Africa are likely to feel the impact of a tropical storm, currently moving over Madagascar, this weekend.
- Provinces recovering from widespread flooding have been warned to brace for more, as it brings heavy rain.
- Cyclone Freddy, recently downgraded to a tropical storm, is likely to bring significant rainfall and the chance of flooding to the north-eastern parts of the country.
- Parts of Limpopo, Mpumalanga and KwaZulu-Natal are expected to be the worst affected.
- US equity futures fell slightly on Friday after Wall Street closed higher in a volatile session overnight.
- Investors awaited the January data on US personal income and consumer spending.
- Sentiment among traders remained fragile, amid worries about the pace of future rate hikes in the face of contradictory economic signals recently.
- Meantime, the strain in US-China relations likely deepened after Bloomberg News said Washington is increasing its small contingent of troops in Taiwan to train local forces.
- Major averages in the US are heading for a weekly fall, with the S&P 500 on its way to its worst week since Dec.16th.
- the Dow is set to its fourth straight losing week, and the Nasdaq is on pace for its 2d negative week
- The yield on the US 10-year declined to 3.86% after rising past the 3.95% mark on Thursday.
- It was to reach its highest in over three months amid further expectations that the Federal Reserve will raise its funds rate to a higher level for a longer period of time.
- The core PCE price index was revised to show a softer slowdown than previously anticipated in the fourth quarter.
- However, downward revisions to the US GDP limited the rally for bond yields.
- The data comes shortly after the release of minutes from the FOMC’s latest meeting,
- which showed that policymakers want interest rates to remain at a restrictive level until inflation is clearly on a path to 2%.
- The Dow added 108 to 33,153
- The SP500 added 21 to 4,012
- The Nasdaq added 83 to 11,590
: image: Trading economics
The US Dollar
- The dollar index was little changed at 104.6 on Friday, remaining near its highest level in seven weeks.
- The buck pointing to the fourth straight week of gains, amid a resilient US economy that supported the case for further monetary tightening from the Federal Reserve.
- The latest FOMC meeting showed that Fed officials noted that upside risks to the inflation outlook remained a key factor shaping the policy outlook
- Also that interest rates would need to move higher and stay elevated until inflation is clearly on a path to 2%.
- Elsewhere, St. Louis Fed President James Bullard said recently the central bank still needs a “sharp” tightening to tame high inflation. Fx news
Asian markets higher across the region .
- In Japan, the Nikkei 225 soared 295 points or 1.1% to 27,399, amid reports that the incoming governor of Bank of Japan Kazuo Ueda is testifying before a lower house committee today.
- Believing that it was appropriate to maintain an ultra-loose monetary policy as inflation in Japan has yet to meet the central bank’s target of 2%.
- Ueda also mentioned there are various possibilities for the future of yield curve control.
- In the US, stocks ended a volatile session Thursday in positive territory, with the S&P 500 snapping a four-session losing streak,
- as investors tried to figure out what the Fed will do with interest rates in the coming months.
- The Japanese yen weakened toward 135 per dollar, hitting its lowest levels in two months .
- Traders citing stronger-than-expected US economic data and hawkish remarks from policymakers.
- All this bolstered expectations the Federal Reserve would keep raising interest rates to tame inflation.
- Investors also continued to assess the implications of Kazuo Ueda’s nomination as the next Bank of Japan governor .
- He already stated that the central bank’s current ultra-easy stance “is appropriate” and “needs to be continued,”
- This countering speculations about normalizing policy. Reuters
- Brent crude futures were up 0.74% to near $83 on Friday.
- Prices advancing for the second day, supported by expectations for lower Russian production.
- Moscow plans to cut oil shipments from its western ports by up to 25% in March from February.
- It will be exceeding its announced production cuts in an attempt to lift prices for its oil, Reuters said Thursday.
- For the week, however, Brent oil fell slightly, rattled by rising US stockpiles. Gulf energy news
- Gold held its recent decline to below $1,830/oz on Thursday, hovering near its weakest levels in 8 weeks.
- Minutes from the Federal Reserve’s last meeting showed that policymakers largely agreed to keep fighting inflation with more interest rate hikes.
- The minutes stated that inflation “remained well above” the Fed’s 2% target and the labour market “remained very tight.
- A major contributing factor to continuing upward pressure on wages and prices.”. Kitco metals report