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Morning NOTE

25 October 2022


The ZAR defied global risk sentiment on the back of portfolio hedging (buying USD), ahead of the SA medium term budget policy announcement.


The Rand reversed all its gains from Friday as foreigners engage in what is commonly known in the market as portfolio hedging ahead of the SA MTBPS.

  • Recap: foreign investors hold large amounts of SA bonds to earn the high interest rates. 
  • To hedge their positions ahead of “high risk” events like the MPC or Budget speeches, investors will commonly BUY USDZAR (in the very liquid FX markets),
    • Than trying to SELL their Bond positions.
    • The hedges typically get unwound after the “event”, if there are no market surprises.
  • Globally, however markets are RISK ON, with the SP500 trading at 3800, the US10YT 4.17%.
    • In addition, Risk on sentiment continued as Asian equity markets mostly rose on Tuesday,
      • after Wall Street advanced for the second straight session.
        • Traders citing upbeat earnings reports and hopes for a less hawkish Federal Reserve boosted sentiment.
        • Shares in Australia, Japan and South Korea gained in early trade.
  • This explains the disconnect of ZAR FX moves vs global risk sentiment
    • and the ZAR likely to correct post the SA medium term budget on Wednesday, and follow global trends.

Significant Market Data:

After a slow week it kicks off on Wednesday and  Thursday.



  • 11h00: SA PPI YOY 15.8% EXPECTED  VS 16.6% PREVIOUS
  • 14H15: ECB INTEREST RATE DECISION +0.75BPS HIKE EXPECTED ( from 1.25% to 2.00% ) .
  • 14H30 : US GDP Q3 : +2.1% EXPECTED VS -0.6% PREVIOUS




  • The ZAR traded weaker and firmly against the RISK TIDE.
    • Global risk trading positive across the board with US yields lower and the SP500 above 3800.
  • However, after recent policy statements (errors) from the UK (the Truss government) have investors on edge ahead of the SA government’s medium term budget policy.
    • Investors preferring to SELL ZAR in favour of US dollars and thus providing a hedge against their large Bond portfolios.
    • This likely to be unwound if there are no negatives in the budget resulting in a Stronger ZAR.
    • Rumours of Fed officials favouring a smaller rate hike in December supporting risk and this likely to filter through in the ZAR after the SA MTBPS.
  • Risk to the budget : Unions demanding 10% increases for public services.
  • Trade today: BUY USDZAR on dips until the SA MTBPS

Expected Ranges

  • USDZAR :  Expect a range 18.2600-18.5600
    • Importers 18.3600-18.2600
    • Exporters 18.4600-18.5600
  • EURZAR :  Expect a range of 18.0800-18.2900
    • Importers 18.1500-18.0800
    • Exporters 18.2200-18.2900
  • GBPZAR :  Expect a range of 20.5700-20.9900
    • Importers 20.7100-20.5700
    • Exporters 20.8500-20.9900


  • USDZAR 18.4300
  • EURZAR 18.1900
  • GBPZAR 20.7800


High risk event ***

  • Public service unions want Treasury to make provision for double-digit wage increases in the medium-term budget on Wednesday.
    • Unions affiliated to Cosatu made the demand at a media briefing in Braamfontein after declaring a dispute.
    • Wage talks between the public sector and government collapsed yet again, with the government refusing to give into the union’s call for a 10% wage increase. EWN
  • Calls to criminally pursue former Steinhoff CEO Markus Jooste are growing louder, with political parties and unions calling on the National Prosecuting Authority (NPA) to “wake up”.
    • This follows the South African Reserve Bank’s move to attach Jooste’s assets valued at over R1.2 billion.
    • The Democratic Alliance (DA) and Cosatu said they were disappointed at the slow pace in the NPA’s investigation. EWN

Stage 8

  • President Cyril Ramaphosa says that the current regulations in place to navigate load shedding in the country only make provision for stage 8 load shedding.
  • He said work is underway for the government to do what it can to never reach that point.
  • “Stage 6 has been the highest level of load shedding to date, and load shedding equates to approximately 5% of the load in a particular area per stage,” he said.
  • “The industry document that guides how load shedding is carried out…currently goes up to Stage 8 load shedding. Load shedding is executed in a controlled manner to ensure system stability across the country.”



  • US stock futures held steady on Tuesday after the major averages advanced for the second straight session, while investors cautiously awaited a slew of potentially market-moving earnings reports from big technology companies.
    • Futures contracts tied to the three major indexes shifted between small gains and losses.
    • In extended trading, Amazon shares dipped slightly on reports of a hiring freeze, while Cadence Design Systems rose on an upbeat earnings report.
    • In regular trading on Monday, the Dow advanced 1.34% to close at its highest level in six weeks, while the S&P 500 and Nasdaq Composite gained 1.19% and 0.86%, respectively.
    • US stocks built on Friday’s gains after a WSJ report suggested that some Federal Reserve officials are concerned about overtightening. Bloomberg


  • The US 10-year Treasury yield, traded around the 4.2%, moving further away from an over 14-year high of 4.3% reached last week.
    • Traders citing hopes the Federal Reserve could slow down the pace of interest rate hikes later this year.
    • Speculation about a policy pivot followed a report from the Wall Street Journal that hinted some Fed officials are concerned about overtightening.
    • San Francisco Fed President Mary Daly echoed this view, saying that the central bank should start discussing the potential of a smaller rate hike in December.
    • Still, treasury yields remain close to their highest since June 2008, as the Federal Reserve has already raised its fed fund futures by 300 basis points since March, one of the fastest moves in history. CNBC


  • The Dow gained 417 to 31,499
  • The SP500 added 44 to 3,797
  • The Nasdaq  added 92 to 10,952


Asian markets all trading higher on the back of a positive close on Wall Street. Following dovish comments from SF Fed president Mary Daley and better than expected earnings.

  • In Japan, the Nikkei 225 rose 1.02% to close at 27,250, rising for the second straight session, with all sectors participating in the rally.
    • Japanese shares also tracked their US peers higher as talks about a slower pace of Federal Reserve rate hikes spurred a rally in risk assets.
    • A weak yen provided an additional boost to local shares as well, as it raises profit forecasts for export-heavy Japanese industries.
  • In Australia, the ASX 200 climbed 0.28% to close at 6,799 on Tuesday, rising for the second straight session, helped by gains in financial and technology stocks.
    • Australian shares also got a boost from the second day of gains on Wall Street driven by hopes for a less hawkish US Federal Reserve.
    • Gains in the financial sector were led by National Australia Bank (1.2%) and Macquarie Group (2.2%). Technology stocks also posted strong gains.  Reuters
  • US Dollar remained around the 112 level and continued to trade near its lowest levels in almost three weeks.
    • The Dollar pressured by growing expectations that the US Federal Reserve would slow the pace of interest rate hikes soon.
    • Traders expectations remain for an expected 75 basis point rate hike in November, followed by a smaller increase in December.
    • Data showing US private sector activity signalled that tighter financial conditions are already having an impact on the economy.
    • The greenback lost some ground against the New Zealand and Australian dollars as risk sentiment improved,
      • and it also weakened against the sterling as Rishi Sunak is set to become UK’s next prime minister. FX news
  • Crude oil, Brent crude remained around $93 /bl, and remaining sideways for the 4th session as traders balanced the prospect of tighter supply against fears of a global economic slowdown.
    • Oil prices remain supported as OPEC+ is set to cut output by 2 million barrels a day from November, while the European Union ban on Russian crude will take effect in December.
      • A softer dollar and hopes for a slower pace of US Federal Reserve rate hikes also lifted risk sentiment.
      • Meanwhile, fears about a potential global recession-driven demand downturn continued to hang over the market. Gulf energy news
  • Gold prices steadied close to $1,650/oz on Tuesday after getting whipsawed in the previous two sessions.
    • Traders waiting for more information and the future of of US Federal Reserve monetary tightening.
    • After delivering a widely expected 75 basis point rate hike in November, Fed officials are likely to consider a smaller increase in December amid concerns about overtightening.
    • Data showing US private sector activity contracted for the fourth straight month in October supported a “slower” Fed in December.
    • Meanwhile, investors remained cautious about upside risks to inflation that could drive another rally in the dollar and Treasury yields.  Kitco metals

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