The ZAR traded stronger on Wednesday on the back of weaker than expected US GDP figures.
The Rand recovered on Thursday to reach 18.2190 following weaker than expected US GDP data.
- The local unit gaining in low volume markets, due to the April 27th holiday after the data release.
- US GDP printed at 1.1% vs 2% expected and 2.6% previous.
- Home sales fell sharply to -5.2% vs +0.5% expected.
- The data also highlighted that business investment growth slowed down, inventories declined and rising interest rates continued to hurt the housing market.
- But, consumer spending remained resilient, while a key inflation measure rose to a one-year high.
- The Fed is widely expected to deliver another 25 basis point interest rate hike in May, supporting the current Bullish bias towards the Dollar.
- But , analysts remain split on whether the central bank would keep borrowing costs elevated for the remainder of the year or start cutting rates in the second half.
- The Dollar index recovering in early Friday trading, following news lows on Thursday.
- The Greenback trading at 101.77 vs 101.30 ( when we closed on Wednesday).
- Earlier this morning the BOJ kept rates unchanged at an accommodative -0.1%, maintaining it NEGATIVE RATES POLICY.
- In addition we look forward to today’s key US PCE as well as Chicago PMI data.
- The data is important as it will be the last prints ahead of next week’s all important Fed rate decision .
- @20H00; WEDNESDAY 3 MAY 2023 – US FED FOMC RATE DECISION EXPECTED +25BPS
- FED FUNDS AT 5.25% VS 5.00% PREVIOUS
The decision and press conference likely to set the tone for the next move in the Dollar and the Rand.
Data This week
- 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 on the back foot on Friday after a solid performance on Thursday .
- On Thursday, the local unit gaining from the weaker than expected US GDP data and the expectancy of a dovish Fed pivot.
- This all being undone as the Dollar recovering in early trading ahead of this afternoon’s key PCE report.
- The PCE( personal consumption expenditure report), is the Fed preferred inflationary gauge.
- Risk assets all on the defensive with the SP500 LOWER as well as the EURUSD (Euro) against the Dollar.
- It appears to be a big stop hunt in early trading as economic data continues to point to a Fed pivot.
- US GDP, housing all affected by the Fed ultra aggressive fight to combat inflation.
- However the elephant in the room remains the Fed.
- The FOMC decides next week Wednesday at 20h00 (SA TIME), with + 25bps expected.
- And like earlier in the week, we anticipate the ZAR to once again be at the mercy of international capital flows,
- Thus changes in risk sentiment will likely drive ZAR price action.
- Trade : TRADE BUY USDZAR ON DIPS.
- USDZAR : Expect a range 18.2600-18.5000
- Importers : 18.3500-18.2600
- Exporters : 18.3800-18.5000
- EURZAR : Expect a range of 20.1400-20.3400
- Importers : 20.2100-20.1400
- Exporters : 20.2400-20.3400
- GBPZAR : Expect a range of 22.8300-23.0300
- Importers : 22.8900-22.8300
- Exporters : 22.9300-23.0300
- USDZAR : 18.3500
- EURZAR : 20.2100
- GBPZAR : 22.8900
Freedom day: Ramaphosa announces R2 trillion to create jobs for SA youth
- Freedom Day comes as South Africa’s unemployment rate is at 32.7%, along with protracted power cuts that impact economic growth negatively.
- Ramaphosa promised to improve governance and service delivery in South Africa – 29 years into democracy.
- In what was obviously a political stunt;
- As usual, Ramaphosa promised to create jobs and announced a bold financial injection of R2 trillion to eradicate youth unemployment.
- The president urged locals to use their democratic rights by voting in the upcoming 2024 elections. EWN
- Former Eskom CEO André de Ruyter has begun testifying before Parliament’s Standing Committee on Public Accounts (Scopa).
- It was his first testimony after explosive corruption allegations he made in an eNCA interview in February.
- He said that corruption at Eskom was probably more than the R1 billion a month he previously estimated in that interview.
- In a 13-page submission to Scopa, De Ruyter said his original estimate was conservative.
Alan Winde v Putin
- Western Cape Premier Alan Winde says Putin will be arrested in his province.
- The national government has not taken a stand on what it will do if Russian President Vladimir Putin comes to South Africa – as he has a warrant of arrest from the ICC.
- Winde says he is prepared to face whatever consequences for his stance.
- US stock futures eased on Friday as investors digested a fresh batch of corporate earnings, with disappointing results from major tech companies hurting sentiment.
- In regular trading on Thursday, the Dow jumped 1.57%, the S&P 500 surged 1.96% and the Nasdaq Composite rallied 2.43%, with all 11 S&P sectors finishing higher.
- Those gains came as strong earnings from Meta fuelled a rally in tech stocks and overshadowed concerns about a Fed-induced economic slowdown.
- Investors also shrugged off weaker-than-expected first quarter GDP data.
- US 10 Year Bond Yield was 3.50 % on Friday April 28, according to over-the-counter interbank yield quotes for this government bond maturity.
- The yield remains anchored around 350 after the weaker than expected US GDP report and ahead of the key PCE report his afternoon.
- But , the key focus remains on next week’s FED FOMC rate decision.
- Markets priced for a 25bps increase to bring the Fed funds rate to 5.25%.
- DOW gained 524 to 33,826
- SP500 gained 79 to 4,135
- NASDAQ unchanged 12,142
image: Trading economics
The US Dollar
- The US dollar index recovered to trade above 101.5 on Friday but was still set to decline for the second straight month.
- Traders citing growing expectations that the Federal Reserve could soon end its aggressive tightening campaign.
- Data on Thursday showed that the US economy grew less than expected in the first quarter as business investment growth slowed down.
- The Fed is widely expected to deliver another 25 basis point interest rate hike in May,
- though analysts remain split on whether the central bank would keep borrowing costs elevated for the remainder of the year or start cutting rates in the second half. Fx News
Asian markets rallying on the back of a stronger performance on Wall Street.
- In Japan the Nikkei 225 Index jumped 1.4% to close at 28,856, rising for the second straight session.
- The index hitting multi-month highs as the Bank of Japan maintained its ultra-easy monetary policy and made no adjustments to its yield curve control.
- However, the BOJ said it will remove forward guidance that pledges to keep interest rates at current or low levels.
- Japanese shares also tracked gains on Wall Street overnight, as an earnings-induced rally in big tech stocks.
- The rally offset concerns that further Federal Reserve monetary tightening could dampen economic growth. Reuters
- US WTI crude futures remained below $75/bl on Friday and were set to decline for the second straight week.
- Traders citing the prospect of a global economic slowdown that could hurt energy demand outweighed signs of tightening global supplies.
- The US oil benchmark is down 4% so far this week, extending a 5.6% decline from last week.
- Data on Thursday showed that US economic growth missed forecasts in the first quarter, while a key measure of inflation rose to a one-year high.
- Investors now brace for further monetary tightening, with the Federal Reserve and European Central Bank set to raise interest rates again in May. Gulf energy news
- Gold steadied near $1,990/oz on Friday and was on track to book a second straight monthly gain.
- Bullion supported as heightened global economic uncertainties and a weaker dollar lifted demand for the safe-haven asset.
- Data on Thursday showed that the US economy grew less than expected in the first quarter as business investment growth slowed down,
- inventories declined and rising interest rates continued to hurt the housing market.
- Speculations that the US Federal Reserve could soon end its aggressive tightening rate-hike cycle also supported bullion prices.
- Gold is highly sensitive to the rates outlook as higher interest rates raise the opportunity cost of holding non-yielding bullion and vice versa. Kitco metals