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GOOD MORNING
The ZAR weakened after US economic data surprised to the upside reinforcing the FED’s view that higher rates are needed to stem inflation.
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SUMMARY
The Rand traded as low at 18.8800 after US GDP as well as Jobless claims posted stronger than expected data.
- Traders piling into the Dollar as the data supported the Fed’s narrative that higher rates for longer are needed to break the back of inflation.
- US yields spiked after the data, with the benchmark 10YT jumping as high as 3.85%.
- The data supporting the narrative earlier in the week that Central are of the opinion that higher rates are needed if inflation is trend materially lower.
- Major economies continue to run hot, with inflation multiple times higher than the target level of 2%.
- Governors remain unison in their view that lower inflation remains the objective even at the expense of a recession.
- The data however does not support a recession, and thus the Fed have room to raise rates even higher.
- This will be Dollar supportive at the expense of other risk assets , like the ZAR .
- We thus conclude the ZAR will under perform in a rising US rate environment.
- Yesterday, SA PPI printed lower but did not have a material effect on the Rand as the focus remains the ZAR.
- Earlier this morning SA private credit extension as well as M3 money supply once again expanded at a healthy pace of 6.85 % and 10.5% YOY respectively.
- The data showing that money are still readily available in the SA economy and likely to allow the SARB to continue to hike rates.
- Today we have US PCE (personal consumption expenditure), the Fed’s preferred gauge for inflation.
- A hot number here, will likely push the Dollar higher at the expense of other currencies.
- Likewise a poor number will be lower Dollar.
- NB: Risk assets likely to find support from H1 and month end buying as (long only) equity fund managers are forced to buy for reporting purposes.
- Likely to be short term and it could slow the Dollar’s advance this session.
Data This weeksd
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 weakened further, reaching R18.8800/$ after US GDP surprised the market.
- The data supporting the Fed’s narrative that rates must go higher to combat inflation .
- The result a spike in yields and demand for the US Dollar.
- EMFX, like the ZAR under pressure and also the Yen, where the BOJ continues to adopt unconventional monetary policy.
- The Japanese yen depreciated past 144 per dollar for the first time since early November.
- The currency approaching the key 145 level that pushed Japanese authorities to intervene in the currency markets in September and October last year.
- This morning we opening sharply weaker as importers look to exact cover in a form of “panic buying “ ahead of month end.
- The ZAR losing 10 cents in early trading to move from 18.7500 to 18.8500
- For now, we expect a stronger Dollar, especially after the G7 central bankers were in unison when discussion policy to bring down inflation.
- The US GDP supporting the view that the US economy can withstand higher interest rates.
- Conclusion – the ZAR likely to remain under pressure.
- This afternoon we await the all important PCE data .
- It’s the inflation gauge the Fed monitors closely, and a higher number will likely drive the Dollar higher at the expense of the ZAR.
- Trade : BUY USDZAR
Markets this morning
- USDZAR 18.7500
- DOLLAR 103.060
- EURUSD 1.0866
- SP500 4,399
- GOLD 1907
- US10YT 3.85%
Expected Ranges:
- USDZAR : Expect a range 18.6600-18.8400
- Importers : 18.7200-18.6600
- Exporters : 18.7800-18.8400
- EURZAR : Expect a range of 20.2600-20.5000
- Importers : 20.3400-20.2600
- Exporters : 20.4200-21.5000
- GBPZAR : Expect a range of 23.5600-23.7700
- Importers : 23.6300-23.5600
- Exporters : 23.7000-23.7700
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OPENING RATES
- USDZAR 18.7500
- EURZAR 20.3700
- GBPZAR 23.6600
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SOUTH AFRICA
SA PUTIN
- President Cyril Ramaphosa filed a confidential affidavit ahead of Russian President Vladimir Putin’s attendance at the BRICS summit in South Africa in August.
- The ICC issued an arrest warrant against Putin in March, accusing him of war crimes relating to Russia’s ongoing invasion of Ukraine since February last year.
- South Africa is a signatory to the ICC and is obliged to arrest Putin if he attends the summit in August.
- The DA approached the court seeking a declaratory order compelling the state to arrest Putin if he sets foot in SA.
- Presidency spokesperson Vincent Magwenya said the confidentiality was in line with the ICC’s requirements.
- The government missed the 23 June deadline to answer the DA’s case and asked for a three-day extension.
- This was unexpected, considering that the state had agreed to file a response by Friday afternoon. Source NEWS24
KZN FLOODS
- The death toll from the KwaZulu-Natal floods has risen from four to seven.
- The provincial Department of Cooperative Governance and Traditional Affairs announced that more bodies have been discovered by search-and-rescue teams.
- Many areas along the south-eastern parts of the province are still recovering from the heavy rains and tornados that hit the province this week. Source EWN
DISCOVERY INSURANCE
- Discovery records big drop in pothole claims on back of Joburg repair drive
- Pothole-related incidents per 100km increased 29% across the country in 2022, but claims in the city of gold dipped.
- The company attributes it to its Pothole Patrol initiative aimed at mending holes in the city’s roads.
- The short-term insurer, said it saw a 26% decrease in claims emanating from pothole accidents in the first year of the initiative.
- The company has seen a reduction in claims related to pothole-related accidents in Johannesburg.
- But, Data also showed the inverse in other cities where the project had not been adopted. Source : MoneyWeb
GLOBAL MARKETS
Stocks
- Equities higher on the back strong US GDP data as well as month end and H1 portfolio rebalancing.
- US stock futures were little changed on Friday as investors look ahead to the latest personal consumption expenditures data, the Federal Reserve’s preferred inflation gauge.
- In regular trading on Thursday, the Dow and S&P 500 gained 0.8% and 0.45%, respectively, as major banks rallied after passing the Fed’s annual stress test.
- Meanwhile, the Nasdaq Composite was flat as technology stocks ended mixed on Thursday.
- Investors also reacted to an upward revision in US first quarter GDP data from 1.3% to 2%, as well as an unexpected decline in initial jobless claims last week, supporting the case for further policy tightening.
- Friday marks a pivotal day for the market, with the three major indexes all set to end the month, the second quarter and the first half in positive territory. Source : Trading economics
Bonds
Government bond Yields continue to rise following strong than expected US GDP data.
In the USA
- US 10 Year Note Bond Yield was 3.86 % on Friday June 30, according to over-the-counter interbank yield quotes for this government bond maturity.
- Yields spiking after stronger than expected economic data supported the Fed’s case for higher interest rates.
- US GDP data indicating, the US economy grew by an annualized 2% on quarter in Q1 2023.
- It was well above 1.3% in the second estimate, and forecasts of 1.4%.
- Consumer spending growth accelerated more than expected to 4.2%, the strongest in nearly two years (vs 3.8% in the second estimate) despite stubbornly high inflation.
- Spending on durable goods surged 16.3% and services rose 3.2%. Exports were up 7.8% and imports rose at a slower 2%, pushing the contribution from net trade higher to 0.58 percentage points
- Last quarter, the US economy grew 2.6%. The Fed sees growth reaching 1% this year.
- Market participants are currently assigning a nearly 84% chance the Fed will deliver a 25bps increase in the fed funds rate in July.
- The focus now shifts to fresh PCE inflation due Friday. Source : Reuters
Yesterday
- DOW +269 to 34,122
- SP500 +19.58 o 4,396
- NASDAQ -0.4to 13,591
 image: Trading economics
OVERNIGHT HEADLINES
Asian markets
Eastern markets mixed after strong US GDP data and the Fed’s commitment to hike rates.
- In Japan, the Nikkei 225 fell 0.14% to close at 33,189, giving back some gains from recent sessions amid a pullback in the technology sector.
- Investors also digested data showing Tokyo’s inflation remained above the Bank of Japan’s target for the thirteenth straight month.
- The data challenging the central bank’s commitment to ultra-loose monetary policy.
- There were losses in the technology and other index heavyweights also declined.
- Still, the benchmark indexes finished the week higher, while booking solid gains for the month, the second quarter and the first half of the year.
- In Australia, the ASX 200 Index rose 0.12% to close at 7,203 on Friday.
- The index finished the week 1.5% higher, underpinned by easing domestic inflation which reinforced expectations that the RBA could soon end its tightening campaign.
- Meanwhile, investors remain cautious about heightened economic uncertainties in China, Australia’s largest trading partner.
- Also, the prospect of further monetary tightening from other major central banks.
- Commodity-linked stocks led the charge. Source Reuters
Energy
Oil prices higher after stronger than expected US GDP data and a drop in US inventories.
- US WTI crude futures steadied around $70/bl and were set to book monthly gains as signs of tightening global supply outweighed demand concerns.
- US crude inventories declined by 9.6 million barrels last week, surpassing market expectations of a 1.8 million barrel draw.
- It comes as Saudi Arabia’s plans to reduce output by an additional of 1 million barrels per day kicks in tomorrow.
- Meanwhile, a significant upward revision in US first quarter GDP growth supported the case for further monetary tightening from the Federal Reserve,
- clouding the outlook for global growth and overall demand.
- Elsewhere, latest data showed that manufacturing activity in top crude importer China remained contractionary in June. Source : GULFNEWS
Metals
Gold under pressure after stronger than expected US data supported the FED’s narrative of higher rates.
- Gold steadied above $1,900 after briefly dipping below the crucial $1900 level.
- Bullion remains on track to decline for the second straight month, weighed down by strong US economic data and hawkish messaging from the Federal Reserve.
- US GDP growth for the first quarter was revised sharply higher to 2% from 1.3%, while initial jobless claims unexpectedly dropped last week.
- The data giving the Fed cushion to keep raising rates. Source : Kitco
Currencies
The Dollar remained on the front foot after US economic data supported the Fed’s narrative for higher rates.
- The dollar remained firmly above 103 on Friday and was set to advance for the second consecutive week amid further signs the US economy remains resilient.
- The data supporting the case for the Federal Reserve to continue raising interest rates.
- US GDP growth for the first quarter was revised sharply higher to 2% from 1.3%, coming in above the 1.4% previous estimate.
- Initial jobless claims also unexpectedly dropped last week, while consumer confidence hit a nearly 1-1/2-year high in June.
- Moreover, results from Fed’s annual stress tests showed the 23 biggest banks in the US are well positioned to weather a severe recession. Source Forexnews
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