The ZAR continued to weaken on the back of global Risk-off sentiment ahead of tomorrow’s US FOMC rate decision.
The Rand continued to trade weaker open at 17.4200, this Tuesday morning on the back of a 1.33% depreciation.
- Investors taking profits on risk assets after major US markets posted a strong performance for the month of January .
- The benchmark SP500 rallying 3.80% for January, and traders happy to take some money off the table.
- The Dollar rebounding as investors nervously await the first FOMC meeting tomorrow and also Fed Chair Jerome Powell’s press conference afterwards.
Inflation continues to be the theme, even though its has been falling across the board, Central banks are set to raise rates to 15 year highs.
- Elevated inflation rates continue to force major central banks to raise borrowing costs,
- despite signs that falling demand may increase recession risks.
- The Fed is expected to announce a 25bps increase in the fed funds rate on Wednesday,
- while on Thursday both the Bank of England and the European Central Bank are set to rise rates by 50bps.
- Markets de-risking on the side of caution ahead of the meetings , although yield curve are pricing for lower rates in 2023.
- The weekly data set remains heavy, but the drivers for the week likely to only be the Fed and Friday’s US Non-farm payrolls report.
Data this week
- 08h00 SA MONEY SUPPLY M3 YOY 8.9% EXPECTED VS 8.75% PREVIOUS
- 08H00 : SA PRIVATE SECTOR CREDIT EXTENSION 8.2% YOY VS 8.3% PREVIOUS
- 12H00: EU GDP GROWTH QOQ 0% VS 0.3% PREVIOUS
- 12H00: EU GDP GROWTH YOY 1.8% VS 2.3% PREVIOUS
- 14H00 : SA BALANCE OF TRADE R 5.5BN VS R7.9BN PREVIOUS
- 16H45 US CHICAGO PMI 44.9 EXPECTED VS 44.9 PREVIOUS
- 12H00 : EU UNEMPLOYMENT RATE 6.5% EXPECTED VS 6.5% PREVIOUS
- 12:00 EU INFLATION RATE 9.1% VS 9.2% PREVIOUS YOY
- 12:00 EU CORE INFLATION RATE 5.1% EXPECTED VS 5.2% PREVIOUS YOY
- 17H00 : US ISM MANUFACTURING PMI 48 EXPECTED VS 48.4 PREVIOUS
- 21H00 : US FED FOMC RATE DECISION + 25 EXPTECED , FED FUNDS 4.5% TO 4.75%
- 21;00: US FED CHAIRMAN JEROME POWELL SPEAKS.
- 14H00 : UK BOE RATE DECISION +50BPS EXPECTED FROM 3.5% TO 4%
- 14H00 : BOE MINUTES
- 15H15 : ECB RATE DECISION +50 BPS, RATE TO MOVE TO FROM 2.5% TO 3%
- 15H45 ECB PRESS CONFERENCE
- 15H30 : US NON FARM PAYROLLS +185K EXPECED VS +223K PREVIOUS
- 17H00 : US ISM SERVICES PMIS 50.3 EXPECTED VS 49.6 PREVIOUS
Market Movement Today:
- The ZAR opening weaker on the back of a weaker session for Risk assets.
- In New York the major indices all retreated ahead of the FED rate decision tomorrow.
- The FOMC will start with their deliberations today, and announce the decision tomorrow.
- Traders happy to book profits ahead of the rates decisions and this will continue to pressure the local unit.
- Markets pricing for the Fed to hike 25bps with the ECB and BOE to adjust policy rates by +50bps.
- The ZAR opening outside its previous range high of 17.3500., indicating a market happy to accumulate dollars ahead of the Fed.
- The inflation risks however remain skewed in favour of the ZAR as global inflation trends point downwards.
- We expect a weaker opening to the ZAR, as risk assets remain under pressure.
- The current elevated levels in the ZAR remain good opportunities for exporters to hedge ( at least) a portion of their proceeds.
- With global inflation trending lower and talks of a recession, the ZAR with its enormous carry advantage will certainly benefit in this environment,
- Where interest rates decline.
- TRADE : SELL USDZAR on rallies.
- USDZAR : Expect a range 17.2500-17.5500
- Importers 17.3500-17.2500
- Exporters 17.4500-17.5500
- EURZAR : Expect a range of 18.7200-18.9900
- Importers 18.8100-18.7200
- Exporters 18.9000-18.9900
- GBPZAR : Expect a range of 21.2900-21.6200
- Importers 21.4000-21.2900
- Exporters 21.5100-21.6200
- USDZAR 17.4200
- EURZAR 18.8800
- GBPZAR 21.5000
STATE OF DISASTER
- RAMAPHOSA MULLS NATIONAL STATE OF DISASTER OVER ENERGY CRISIS
- Addressing the close of the ANC NEC lekgotla on Monday night,
- Ramaphosa said party leaders have backed calls for the state of disaster to speedily address South Africa’s power crisis.
- This would effectively allow the “fix” to happen in a much shorter period than the 18 to 24 months government had originally communicated to South Africans. NEWS24
- Democratic Alliance (DA) leader John Steenhuisen on Wednesday said the party’s march was the beginning of more peaceful protests aimed at forcing the government to address South Africa’s challenges.
- The DA said the governing party failed to find solutions to ensure energy security.
- Steenhuisen said the party will host more of these marches to highlight other challenges like crime, poverty and power challenges with the hope that they will be treated with urgency.
- HE SAID We don’t have an Eskom problem, we don’t have a Nersa problem, we have an ANC problem in South Africa and that’s why we are here and not wasting our time at the Union Buildings.”
- Meanwhile, at least a thousand DA members were marching to ANC offices in Cape Town’s CBD. Ewn
- Outgoing Eskom CEO Andre de Ruyter said that the utility’s current leadership is paying for the “sins of the past”.
- De Ruyter added that the load shedding crisis that South Africans have had to brave is not a new development.
- He said the government had known about it since 1998 when an energy white paper recorded that Eskom was asking for new capacity to be added on an urgent basis. Ewn
- In regular trading on Monday, the Dow fell 0.77%, the S&P 500 lost 1.3% and the Nasdaq Composite dropped 1.96%,
- But the major averages are on track to end January higher.
- In a stellar month for stocks, the tech-heavy Nasdaq gained 8.86% so far this month, while the S&P 500 and Dow are up 4.64% and 1.72%, respectively.
- US stock futures rose on Tuesday as Wall Street looks to end January on a positive note, though investors remain cautious ahead of an expected interest rate hike from the Federal Reserve this week.
- Futures contracts tied to the three major indexes were all up at least 0.1%.
- Those gains came as easing inflation, weakening economic data and mixed corporate earnings in the US bolstered hopes that the Fed will slow the pace of rate increases.
- Investors now look ahead to the central bank’s decision on Wednesday, as well as more economic data and earnings reports this week. Source Reuters
- The yield on the US 10-year Treasury, remained around the 3.5% ahead of the FOMC decision on Wednesday.
- Investors reassessed the Federal Reserve’s plans for rate hikes and the potential impact on the economy.
- Earlier, the US GDP expanded by 2.9% in the last quarter of 2022, beating market expectations of a 2.6% advance.
- The growth numbers underscoring the economy’s resilience, and adding leeway for the Federal Reserve to extend its hawkish momentum.
- Positively, a Commerce Department report showed that core PCE price inflation fell to a 14-month low of 4.4% in December,
- offering hope that inflation has peaked.
- Markets are pricing that the US central bank will hike rates by 25 basis points tomorrow.
- At the same time, growing speculation about a recession prompted bets that the Fed will eventually cut rates later this year. Bloomberg
- The Dow declined 260 to 33,717
- The SP500 fell 52 to 4,017
- The Nasdaq fell 227 to 11,393
- The US Dollar firmed up above 102 on Tuesday as investors look ahead to a highly-anticipated interest rate decision.
- However, the Buck on track for its fourth straight monthly decline amid growing fears of a US recession and bets for a slower pace of central bank policy tightening.
- The Fed is widely expected to deliver a smaller quarter-point increase on Wednesday, while investors will be watching for clues on the path for interest rate rises.
- The recent lower than expected US PCE supporting the case for a smaller hike.
- US consumer spending also declined more than expected in December, indicating a slowing economy at the end of last year, with most analysts expecting a mild recession by the second half of 2023.
- The Bank of England and the European Central Bank are set to decide on monetary policy this week as well.
Asian markets lower across the board, after a down session on Wall street. Investors booking profits ahead of the Fed’s rate decision tomorrow.
- In Japan, the Nikkei 225 fell 0.39% to close at 27,327, with Japanese stocks facing pressure ahead of key policy decisions from major central banks this week.
- Investors also digested a slew of mostly positive Japanese data, with the country’s unemployment rate holding steady in December, while retail sales and industrial production data came in better than anticipated.
- In Australia, the ASX 200 fell 0.07% to close at 7,477 on Tuesday.
- The ASX lower for the second straight session as technology faced heavy selling pressure ahead of expected interest rate hikes from major central banks this week.
- Investors also assessed a slew of Australian economic data, with retail sales in the country declining more than expected in December, while private sector credit grew at the weakest pace in 20 months.
- Crude oil and the global oil benchmark Brent remained below $85/bl on Tuesday after losing more than 3% in the past two sessions,
- In addition, the US WTI crude oil price also below $78/bl per barrel on Tuesday after losing about 4% in the past two sessions.
- Pressure on prices on the back of the major central banks, looking to tighten policy further this week,
- Their actions stoking fears of a global economic slowdown and weighing on market sentiment.
- Investors also fretted about robust Russian supply, with the country’s oil producers able to secure export deals despite Western sanctions and price caps on the back of strong demand from Asia.
- Still, the reopening of the Chinese economy has given markets reasons to be bullish, with authorities pledging over the weekend that they would promote consumption recovery as a significant economic driver and boost imports.
- Latest data also showed that Chinese manufacturing and services activity rebounded sharply in January.
- Moreover, OPEC will likely maintain current oil production levels when they meet later this week, keeping global supplies tight. Gulf Energy News
- Gold held its recent decline to around $1,920 /oz as investors turned cautious ahead of key interest rate decisions from major central banks this week.
- Bullion is still set to gain for the third straight month amid global recession fears and bets for a slower pace of monetary policy tightening.
- In the US, the Federal Reserve is widely expected to deliver a smaller quarter-point increase on Wednesday, while investors will be watching for clues on the path for interest rate rises.
- Data released on Friday showed that the Fed-preferred core PCE inflation measure in the US slowed to an over one-year low in December, supporting the case for a smaller hike.
- Gold remains highly sensitive to the rates outlook as higher interest rates raise the opportunity cost of holding non-yielding bullion and vice versa. Kitco metals report .