The ZAR weakened after US economic data surprised to the upside reinforcing the FED’s view that higher rates are needed to stem inflation.
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
- 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%
- 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
- USDZAR 18.7500
- EURZAR 20.3700
- GBPZAR 23.6600
- 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
- 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 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
- 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
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
- DOW +269 to 34,122
- SP500 +19.58 o 4,396
- NASDAQ -0.4to 13,591
image: Trading economics
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
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
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
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