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GOOD MORNING
The ZAR recovered after weaker US economic data curtailed the recent Dollar rally.
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SUMMARY
The Rand recovering nearly 1.2% follow a broad-based retreat in the Dollar.
- The local unit target the R18.50/$ level after briefly touching 18.7500.
- US yields drifting lower after another set of weaker than expected economic data.
- In addition, the removal of the Russian Coup threat, effectively reducing the need for Dollar demand due to the Buck’s safe have status.
- Gold even rallying $10/oz to open at $1920/oz.
- However, US interest rates remain the drivers of long term currency trends and the FED, ECB, BOE, BOC, RBA’s insistence on raising rates, implies a sharp global contraction in money supply.
- The drop in global M2 and M3, will affect risk assets negatively.
- In addition the upcoming issuances from the US Treasury to replenish depleted cash reserves in the “Treasury General account”, will likely exacerbate the reduction in money supply.
- This will all add to negative pressure on Risk assets as it is effectively a form of QT i.e. Quantitative tightening.
- Analysts expecting the US treasury cash need to be around $1trillion.
- In conclusion, it appears that the recent Risk rally as witnessed in the Nasdaq as well as emerging market FX , has run its course, and a period of Dollar strength likely.
- This will result in a weaker ZAR.
Data This week
- The data week starting off rather slowly before high risk events kick in.
- Powell, US GDP, US PCE the headliners this week, that will be the determinants of future direction for the USD and the ZAR.
Tuesday
- 10H00 : ECB PRESIDENT LAGARDE SPEAKS
- 14H30 : CANADA INFLATION 3.4% EXPECTED VS 4.4% PREVIOUS
- 14H30 : US DURABLE GOODS ORDERS -1% EXPECTED VS +1.1% PREVIOUS
- 15H00 : US HOME PRICE INCREASES MOM 1.5% UNCHANGED EXPECTED
Wednesday
- 15H30 : FED CHAIR JEROME POWELL SPEAKS
Thursday
- 11H30 : SA INFLATION PPI 6.8% YOY VS 8.6% PREVIOUS
- 14H30 : US INITIAL JOBLESS CLAIMS
- 14H30 : US GDP 1.4% EXPECTED VS 2.6% PREVIOUS
- 21H00 : FED GOVERNOR BOSTIC SPEAKS
Friday
- 08h00 : SA MONEY SUPPLY M3 11.3% VS 10.2% PREVIOUS
- 11H00 : EU INFLATION 5.6% VS 6.1% PREVIOUS
- 14H00 : SA TRADE BALANCE +R6.6BN VS R3.45BN PREVIOUS
- 14H30 : US PCE 4.7% EXPECTED VS 4.7%PREVIOUS YOY
- 14H30 : US PCE 0.4% EXPECTED VS 0.4% PREVIOUS MOM
- 15H45 : CHICAGO PMI’S 44 EXPECTED VS 40.4 PREVIOUS
Market Movement Today:
- The Rand recovered in Monday trading to open at 18.5700 in early European trading.
- We expect a stronger ZAR this session, due to improved global risk sentiment.
- The local unit bouncing back after the US Dollar retreated following weaker than expected US economic data.
- Traders continue to worry about an impending recession due to the Fed ‘s insistence on hiking interest rates.
- However, the world’s largest central bank and it peers are determined to hike rates to stem the global inflationary trend.
- Although the pace of consumer prices appear to be slowing down, in most economies, inflation continue to run at hot at more than 2 times the inflation target.
- Advanced economies have and inflation target of 2% and current inflation in the USA is 4% and in the UK 8.7%.
- Markets are waiting in anticipation of Powell’s speech on Wednesday where he is likely confirm the Fed’s monetary stance.
Locally, SA bond yields continue to fall as investors take advantage of the large carry advantage.
SA10GB now at 10.52% vs 10.75% earlier in the week.
Risk events remain the Fed Chair Powell as well as US GDP and US PCE later in the week.
Markets this morning
- USDZAR 18.5700
- DOLLAR 102.60
- EURUSD 1.0926
- SP500 4,340
- GOLD 1928
- US10YT 3.73%
- Trade : BUY USDZAR on dips (i.e. SELL ZAR)
Expected Ranges:
- USDZAR : Expect a range 18.4600-18.7600
- Importers : 18.5600-18.4600
- Exporters : 18.6600-18.7600
- EURZAR : Expect a range of 20.1800-20.4500
- Importers : 20.2700-20.1800
- Exporters : 20.3600-20.4500
- GBPZAR : Expect a range of 23.5100-23.8400
- Importers : 23.6200-23.5100
- Exporters : 23.7300-23.8400
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OPENING RATES
- USDZAR : 18.5700
- EURZAR : 20.2900
- GBPZAR : 23.6600
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SOUTH AFRICA
The Deputy president
- Deputy President Paul Mashatile remains under pressure but have resisted calls to “come clean” about allegation of corruption.
- The group, Public Interest SA, called on him to address “serious allegations” linking him with “those who are accused of plundering public resources through state capture and corruption”.
- On Monday, News24, revealed that Mashatile lives a life of luxury, living in expensive homes owned by businessmen benefitting from state contracts, including state capture-linked Edwin Sodi.
- Public Interest SA said this shows Chief Justice Raymond Zondo was “correct to lament the snail pace with which the National Assembly is processing his recommendations”. Source NEWS24
Harmony Gold
- Following the explosion at Harmony, the Department of Mineral Resources and Energy said it had detected movements beneath the earth, pointing to signs of life.
- There may be survivors trapped underground in an unused mining shaft in Welkom,
- in the Free State, where at least 31 illegal miners believed to be Basotho nationals were killed during a methane explosion last month.
- The mining shaft that was last used by Harmony Gold Mining Company Limited more than three decades ago. Source EWN
ESKOM
- Minister of electricity Kgosientsho Ramokgopa, said Eskom is able to maintain a much lower stage of load shedding due to the improvement of the Energy Availability Factor (EAF),
- this even as the demand for electricity is increasing,
- Addressing a virtual media briefing on Sunday, Ramokgopa said Eskom is much closer to achieving its target of 70% EAF. Source : ESKOM
GLOBAL MARKETS
Stocks
Equities futures higher in early Tuesday trading
- On Monday, the Dow shed 0.04%, the S&P 500 dropped 0.45% and the Nasdaq Composite plunged 1.16%.
- Mega-cap technology names led the selloff as investors continued to take profits.
- Tech stocks under pressure with sharp losses from Tesla (-6.1%), Nvidia (-3.7%), Amazon (-1.6%), Microsoft (-1.9%) and Meta Platforms (-3.6%).
- This morning, US stock futures edged higher after the major averages declined during Monday’s regular session amid a selloff in technology and other growth stocks.
- Futures contracts tied to the three major indexes were all up about 0.2%.
- Investors now look ahead to a slew of US economic reports on Tuesday including home sales, durable goods and consumer confidence data. source: Trading economics
Bonds
Government bond Yields remain higher and supported by the potential for more Central bank rate rises.
In the USA
- The yield on the US 10-year Treasury note was trading around 3.7% in the last week of June.
- Trades citing concerns that higher interest rates could cause a recession linger.
- Last week, Fed Chair Powell reiterated to the Congress that interest rates would need to go higher and signalled two more rate hikes.
- Appearances from several Fed officials, including Chair Powel, will be in the spotlight this week.
- In addition , with San Francisco Fed Bank President Mary Daly suggesting that two more rate hikes this year is a “very reasonable” projection. |Source CNBC
In the UK
- The yield on the 10-year UK gilt fell to 4.3%.
- Traders citing, the BOE’s larger-than-anticipated 50-basis point rate hike raised concerns about the potential for a UK recession.
- Last week, the Bank of England implemented its 13th consecutive rate hike and suggested the possibility of further tightening measures.
- In May, inflation stood at 8.7%, defying expectations of a decline to 8.4% and remaining significantly above the bank’s targeted 2% level.
- As a result, investors are now anticipating the main interest rate to peak at 6.1% by February 2024. Source : Bank of England
On Friday
- DOW -12 to 33,714
- SP500 -19 to 4328
- NASDAQ -156 to 13,335
 image: Trading economics
OVERNIGHT HEADLINES
Asian markets
Eastern markets traded mixed on the back of negative Wall Street and improved sentiment in China.
- In Japan, the Nikkei 225 Index fell 0.6% to 32,500, extending losses from the previous session.
- Technology stocks leading the decline as investors continued to take profits after a strong rally in the sector.
- Japanese shares also took cues from a negative lead on Wall Street as the prospect of further interest rate hikes from the Federal Reserve continued to grip the market.
- Losses in the technology sector.
- In China, the Shanghai Composite rose 0.5% to above 3,160, recouping some losses from the previous session as risk sentiment improved.
- Investors also remained hopeful for more aggressive policy measures to support growth following a series of disappointing economic reports.
- Industrial, consumer and healthcare stocks led the charge but, technology stocks mostly declined Source : Reuters
Energy
Oil prices lower after the failed Russian coup and the removal of crude supply concerns.
- US WTI crude futures traded below $70/bl.
- Fears of a supply disruption dissipated after the failed military coup in Russia.
- The paramilitary group Wagner advanced toward Moscow on Saturday before retreating shortly thereafter.
- But, investors remained fearful of more interest rate hikes from major central banks that could hurt global growth and future energy demand.
- Also, a disappointing post-pandemic recovery in top crude importer China also continued to dampen investor sentiment. |source : Gulf News
Metals
Precious metals higher on lower US rates after weaker than expected US economic data.
- Gold recovered to trade above $1,930 /oz on Tuesday.
- The yellow metal higher as concerns about political instability in Russia eased.
- Traders happy to sell the safe-haven Dollar in favour of Gold. In addition, Investors continued to assess the economic and monetary policy outlook globally.
- Also, the US Federal Reserve signalled further rate increases this year to bring down inflation.
- Those moves stoked fears that higher interest rates could weaken the global economy, causing a wave of cautious positioning across financial markets. |source : Kitco
Currencies
The Dollar retreated off recent high’s following weaker than expected US economic data.
- The Dollar index declined to 102.40 on Tuesday, falling for the second straight session.
- Traders continued to assess the economic and monetary policy outlook.
- Last week, Federal Reserve Chair Jerome Powell said that further rate increases are likely ahead as inflation remains too high.
- Other Fed officials mirrored his statements, with San Francisco Fed Bank President Mary Daly suggesting that two more rate hikes this year is a “very reasonable” projection.
- Meanwhile, data released on Friday showed that US private sector activity slowed to a three-month low in June amid a deepening contraction in the manufacturing sector.
- The dollar also faced pressure from aggressive monetary tightening from other major central banks, after the ECB and the BOE increased interest rates further in June. Source : Forexnews
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