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GOOD MORNING
The ZAR bull run continues with the local unit reaching 17.6300 in overnight trading.
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SUMMARY
The Rand continued its recent rally, with more gains after the Risk assets rebounded in New York.
- Markets happy to go “long” risk ahead of the Fed’s FOMC on Wednesday.
- The main beneficiaries remain, Stocks (SP500 HIGHER) as well as high yielding emerging market FX.
- Investors betting that the FED will hike once more, but then END ITS HIKING CYCLE.
- This after PMI data showed that the expansion in the US services demand slowed considerably in July.
- It raised concerns that previously-resilient parts of the economy may be succumbing to pressure from higher interest rates from the Fed.
- The US benchmark 10yr at 3.88% ahead of the meeting with the Dollar index firmly above 101.20.
- The Rand gains (+2.3%) part of broader EM gains as the Mexican Peso also gained 1%.
- The Dollar however well supported against the Yen, Pound and Euro.
The focus this week will be on the Federal Reserve’s rate policy meeting .
- The FOMC meets on Tuesday and Wednesday, and chairman Powell, will announce the decision at 20h00 SA time on Wednesday.
- Markets are priced for 25 bps rate hike and, all officials continued to anticipate that, with inflation still well above the 2% goal
- The labour market remaining very tight, maintaining a restrictive stance for monetary policy would be appropriate,
- and almost all considered appropriate to raise borrowing costs again this year.
Data This week
Tuesday
- 16H00 : US CONSUMER CONFIDENCE 111.5 EXPECTED VS 109.5 PREVIOUS
Wednesday
- 03H00 : AUSTRLIAN INFLATION 6.2% EXPECTED YOY VS 7%
- 16H30 : US NEW HOME SALES -4% EXPECTED MOM VS +12.2% PREVIOUS
- 20H00 : ***US FED FOMC INTEREST RATE DECISION +25BPS TO 5.5% FED FUNDS
- 20H30 : ***US PRESS CONFERENCE : JEROME POWELL TO OUTLINE FUTURE RATE PATHS.
Thursday
- 11H30 : SA PRODUCER INFLATION PPI 6% YOY VS 7.3% PREVIOUS
- 14H15 : ECB RATES DECISION +25BPS EXEPCTED TO 4.25%
- 14H45 : ECB PRESS CONFERENCE
- 14H30 : US GDP GROWTH RATE +1.7% EXPECTED VS 2% PREVIOUS
- 14H30 : US DURABLE GOODS MOM +0.75 VS +1.7% EXPECTED.
- 14H30 : US WEEKLY JOBLESS CLAIMS +235K EXPECTED VS +228K PREVIOUS
Friday
- 14H30 : US CORE PCE MOM +0.2% VS +0.3% PREVIOUS
Market Movement Today:
- The ZAR continued to benefit from a risk on trade ahead of the Fed tomorrow.
- The local unit gaining more than 2% to reach 17.6300 in early trading.
- The FOMC widely expected to hike rates by 25 bps and the benchmark 10YT at 3.88%
- Fed officials continued to anticipate that, with inflation still well above the 2% goal and a tight labour market,
- that maintaining a restrictive stance for monetary policy would be appropriate.
- The above factors all causing Fed governors to call for more rate hikes this year.
- The Dollar on the back foot vs emerging markets FX, with the Mexican Peso also gaining more than 1%.
- Softer US services PMI supporting high yielding currencies, where are traders are once again jumping onto the carry advantage,
- The assumption remains that the FED will pause after this hike.
- It is however not a straight forward picture, as the Dollar continued to trade strongly vs the G7 currencies like the Yen, Pound and Euro.
For now expect more volatility with the weight of the evidence supporting a stronger ZAR.
- Trade : SELL USDZAR on rallies
Markets this morning
- USDZAR 17.6700
- DOLLAR 101.25
- EURUSD 1.1080
- SP500 4,555
- GOLD 1961
- US10YT 3.83%
Expected Ranges:
- USDZAR : Expect a range 17.5100-17.8700
- Importers : 17.6300-17.5100
- Exporters : 17.7500-17.8700
- EURZAR : Expect a range of 19.4200-19.7500
- Importers : 19.5300-19.4200
- Exporters : 19.6400-19.7500
- GBPZAR : Expect a range of 22.5500-22.8500
- Importers : 22.6500-22.5500
- Exporters : 22.7500-22.8500
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OPENING RATES
- USDZAR : 17.6700
- EURZAR : 19.5800
- GBPZAR : 22.7000
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SOUTH AFRICA
ESKOM
- Minister of Electricity Kgosientsho Ramokgopa has refuted claims suggesting that Eskom is not making any progress in efforts to eradicate load shedding.
- He was addressing the media on the implementation of the Energy Action Plan on Monday.
- Among other things, Ramokgopa outlined steps that would be taken to bring an end to the rolling power cuts.
- As the country was hit by high stages of load shedding due to cold weather last week, the minister was criticised over Eskom’s failure to meet demand. SOURCE NEWS24
VIP PROTECTION
- Members of Deputy President Paul Mashatile’s security detail accused of assaulting three men on the side of the N1 highway face several counts of assault, malicious damage to property and the pointing of a firearm.
- The protection unit stating that there was a blue VW Polo that was repeatedly trying to hit the main car, which Mashatile was riding in.
- As one of the drivers, Kojoana said they eventually pulled the Polo onto the side of the road.
- “It tried several times to bump this motor vehicle that we’re protecting.”
- The men made their first appearance before the Randburg magistrates court on Monday, where they face several counts of assault, malicious damage to property and the pointing of a firearm. Source EWN
GLOBAL MARKETS
Stocks
Stocks higher ahead of key central bank meetings .
- In regular trading on Monday, the Dow gained 0.52%, the S&P 500 rose 0.4% and the Nasdaq Composite edged up 0.19%.
- US stock futures held steady on Tuesday after the major averages ended in positive territory during Monday’s regular session.
- Nine out of the 11 S&P sectors advanced, led to the upside by energy, financials and real estate.
- The Dow rising for the 11th straight session which is its longest winning streak since February 2017.
- Futures contracts tied to the three major indexes all traded near breakeven.
- Markets remain well bid ahead of the FED on Wednesday.
Bonds
Government bonds range trading ahead of the FED and ECB.
- Government bond yields across the world retreated in the last week of July, with the yield on US 10-Year Treasury note hovering at 3.8%.
- The benchmark 25bps lower since touching a four-month high earlier in the month as investors adjusted positions ahead of key corporate earnings and the Federal Reserve’s rate decision this week.
- Services PMI data showed that the expansion in the US services demand slowed considerably in July.
- The central bank is widely expected to raise interest rates this week, but evidence of a slower economy drove markets to bet that no additional tightening will follow for the rest of the year. Source : US treasury
Yesterday’s close
- DOW +183 to 35,411
- SP500 +18 to 4,554
- NASDAQ +26 to 14,058
 image: Trading economics
OVERNIGHT HEADLINES
Asian markets
Asian markets mixed ahead okey central bank decisions.
- In Japan, the Nikkei 225 Index shed 0.06% to close at 32,682, with Japanese shares struggling for clear direction.
- Investors braced for key policy decisions from the US Federal Reserve, the European Central Bank and the Bank of Japan this week.
- On Monday, data showed that Japanese manufacturing activity contracted further in July, while services activity slowed.
- Japanese stocks traded mixed on Tuesday, with notable losses from index heavyweights such as SoftBank Group (-0.9%).
- In China, the Shanghai Composite jumped 1.5% to above 3,200, rebounding sharply from multi-week lows after China pledged to ramp up policy support for its flagging economy.
- The government said it would focus on boosting domestic demand and helping the ailing property market.
- The latest pledges came a week after data showed the country’s economic momentum slowed in the second quarter amid weakening domestic and global demand.
- Heavyweight technology, new energy and property stocks also posted strong gains. Source : Trading economics
Energy
Oil prices higher on the back of a rebound in Chinese demand and tighter supply.
- US WTI crude futures rose toward $79/bl and Brent Crude reached $83/bl on Tuesday.
- Prices hovering near a three-month high hit in the previous session, underpinned by the prospect of tighter global supplies and stronger Chinese demand.
- SUPPLY – The oil market remains supported by output cuts from OPEC+, with the group signalling readiness to take additional measures if needed.
- DEMAND– China pledged to ramp up policy support for its flagging economy, with a focus on boosting domestic demand and helping the ailing property market.
- INTEREST RATES – Nevertheless, caution reined ahead of crucial interest rate decisions from both the FED and ECB.
- Market expectations suggest that both central banks are likely to implement rate hikes this month.
- However, traders have dialled back their expectations of further monetary tightening this year due to easing inflationary pressures. Source : Gulf News
Metals
Precious metals range trading ahead of key central bank decisions.
- Gold steadied around $1,960/oz on Tuesday as investors braced for interest rate decisions from major central banks this week.
- The US Federal Reserve is widely expected to raise interest rates by 25 basis points on Wednesday.
- Traders will listen closely to Fed Chair Jerome Powell’s comments after the meeting for clues on the central bank’s next steps.
- The ECB is also seen lifting rates by another quarter-point on Thursday, while the BOJ will likely keep its policy of ultra-low interest rates unchanged on Friday.
- Moreover, markets look ahead to the Fed-preferred PCE inflation gauge and advance estimate of Q2 GDP growth in the US this week. Source : Kitco
Currencies
The Dollar mixed ahead of the FED, with sharp losses vs EMFX and gains vs G7FX.
- The US dollar fell remained above the 101.28 on Tuesday.
- The Buck snapping a five-day advance as traders turned cautious ahead of key policy decisions from the US Federal Reserve, the European Central Bank and the Bank of Japan this week.
- The Fed is widely expected to raise interest rates by 25 basis points on Wednesday.
- Traders will listen closely to Fed Chair Jerome Powell’s comments after the meeting for clues on the central bank’s next steps.
- The ECB is also seen hiking rates further on Thursday, while the BOJ will likely stick to ultra-easy monetary policy on Friday.
- On the data front, the latest PMI survey showed that private sector growth in the US slowed to a five-month low in July amid weakening services activity.
- The dollar eased across the board, with the most pronounced selling activity against the Australian dollar. Source : Forex news
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