The ZAR consolidated around the 17.3000 handle, ignoring global risk off and a spike in the Dollar.
- The Rand traded in a narrow range as markets focus on international developments and appears to be ignoring Ramaphosa’s problems.
- US yields have rebounded following strong ISM data and markets turning their attention to Thursday’s PPI data.
- The dollar recovered across the board, on Risk off sentiment after JP Morgan’s CEO said the US likely to face a recession in 2023.
- He cited high interest rates and also inflation as have a negative affect on consumer spending.
- The ZAR however ignoring the rebound and continues to gain strength from the HIGHLY UNLIKELY scenario of Cyril being removed.
- Attention will thus once again switch to the Risk trade and US yields.
- Markets are trading with a “risk off “ tone, ahead of next week’s December FED meeting and Dimon’s comments.
- The FED is widely expected to hike 50 bps and then slowdown in 2023.
- On the back of this we expect some session weakness, but maintain the outlook for a stronger ZAR in 2023.
- Earlier in the session, the ZAR received a boost following better than expected SA GDP data.
- Stats SA reported that GDP rose by 1.6% in Q3 for QoQ to September of 2022,
- It was above market forecasts of a 0.6% increase, and also following a 0.7% contraction in the prior quarter.
Significant Market Data:
- 11h30 : SA GDP GROWTH Q3 YOY +0.4% EXPECTED VS 0.2% PREVIOUS
- Actual was 1.6% better than expected
- 12h00 : EU GDP GROWTH Q3 TOT +1.7% EXPECTED VS 2.7% PREVIOUS
- 11h00 : SA CURRENT ACCOUNT Q3 R-140BN EXPECTED VS -R87BN PREVIOUS
- 13H00: SA MANUFACTURING OCTOBER YOY -1.7% VS +2.9% PREVIOUS
- 15H30 : US PPI NOVEMBER YOY +7.2% EXPECTED VS 8% PREVIOUS
- 17H00 : US MICHIGAN CONSUMER SENTIMENT 57 EXPECTED VS 56.8 PREVIOUS
- The ZAR opening inside the previous session and the current week’s range of 17.5000-17.1400
- The local unit pivoting around the 17.3000 level.
- Expect some early ZAR gains (market maker stop hunts)
- … before more weakness on the back of the global risk off back drop.
- …The narrow ranges signalling a market looking for direction from “new NEWS / DATA”.
- Last night, Risk sentiment turned negative as Stocks fell and the USD recovered.
- Comments from JP Morgan CEO Jamie Dimon, causing a bit of angst as investors exited Risk assets as he called for a Recession in 2023.
- The environment indicating the possibility of a weaker ZAR this session.
- Yesterday’s better than expected GDP data was ZAR supportive and we do expect ZAR gains on the back of a “dovish” Fed in 2023
- Today, expect some ZAR weakness as Dollar shorts get squeezed following the Risk sell-off in New York.
- A break of 17.3800 to target 17.5000.
Trade : BUY USDZAR ON DIPS .
- USDZAR : Expect a range 17.1800-17.4800
- Importers 17.2800-17.1800
- Exporters 17.3800-17.4800
- EURZAR : Expect a range of 18.0000-18.2700
- Importers 18.0900-18.000
- Exporters 18.1800-18.2700
- GBPZAR : Expect a range of 20.8300-21.2200
- Importers 20.9600-20.8300
- Exporters 21.0900-21.2200
- USDZAR 17.3200
- EURZAR 18.1100
- GBPZAR 21.0000
- Opposition parties are not letting up in their demand for a parliamentary portfolio committee that will exercise oversight over the Presidency.
- They say the longer Parliament drags its feet on the matter, the more it will again be found wanting.
- The repeated call has once again been made as the House prepares to debate the president’s conduct,
- This on the back of findings by an independent panel that he may have violated the Constitution and anti-corruption laws. EWN
- Eskom has announced that power cuts will be moved up to stage 4 on Wednesday morning.
- The ramped-up power cuts will kick in at 9am until further notice.
- The power utility said that this was due to further breakdowns to some of its power plants as well as the delay in generating units.
- Eskom said “Due to further breakdowns and delays in the return of generating units to service, stage four load shedding will be implemented from 9am.” News24
- Fitch Ratings warned that President Cyril Ramaphosa’s Phala Phala scandal added risk to the country’s policy outlook.
- Following the release of a damaging Section 89 panel report into the saga, Ramaphosa faced an onslaught of criticism from the political fraternity.
- The rating agency warned that political instability and a sketchy policy outlook could further weigh on short-term investment prospects if they weaken business sentiment.
- Despite the warning, the United States-based credit rating agency said broad policy continuity was the likely outcome, even if Ramaphosa resigned. IOL
- On Tuesday, the Dow fell 1.03%, the S&P 500 dropped 1.44% and the Nasdaq tumbled 2%, with ten out of 11 S&P sectors closing in negative territory.
- The moves came after JPMorgan Chase CEO Jamie Dimon saying that persistently high inflation will dent consumer spending and most likely drag the world’s largest economy into a recession next year.
- This morning, stock futures steadied in Asian trade.
- Futures contracts tied to the three major indexes drifted flat to slightly positive.
- The US 10-year yield consolidated around 3.5%, as investors piled into government debt amid prospects that the Federal Reserve will soon slow its pace of rate hikes and fears of an economic slowdown.
- While better-than-expected ISM services and Jobs data brought some uncertainty regarding the Fed funds terminal level,
- Markets continued to price a 50 basis points hike in December.
- On top of that, some sectors of the US economy, including housing and industry, have been flashing recessionary signs.
- also, the gap between 2 and 10-year bond yields widened to over 80 basis points, the largest since at least 1981.
- The Dow fell 350 to 33,596
- The SP500 fell 57 to 3,941
- The Nasdaq fell 225 to 11,014
- Asian markets trading lower on the back of a sell-off on Wallstreet
- In Japan, the Nikkei 225 fell 0.6% to 27,700, resuming a recent downtrend and taking cues from a negative session on Wall Street.
- Recession warnings were raised by US Bankers, notably JP Morgan’s Jamie Dimon, who said :
- “ persistently high inflation will dent consumer spending and most likely drag the world’s largest economy into a recession in 2023”.
- Investors also reacted to data showing the sentiment of large manufacturers in Japan improved in December, though the outlook remained soft.
- However, technology stocks led the decline, with notable losses from Tokyo Electron (-2.7%). Reuters
- In Australia, the ASX 200 dropped 0.85% to close at 7,229 and also declining for the second straight session.
- Investors reacted to data showing the Australian economy expanded less than expected in the Q3,
- Traders citing persistent inflation and rising interest rates, affecting consumption.
- On Tuesday, the RBA raised its policy rate by 25 basis points and said that it expects to tighten further to bring down inflation.
- So far the RBA has lifted the cash rate for the 8th consecutive month and taking borrowing costs to a 10-year high of 3.1%.
- Australian shares also tracked losses on Wall Street overnight as top US bankers sounded the alarm over a possible recession.
- Technology stocks also led the decline, like in Japan. Reuters
- The US dollar rallied to remain above the 105.75 level on Wednesday after rising for two straight sessions.
- The Buck supported by concerns about a possible recession that hurt risk sentiment and the prospect of higher interest rates.
- Bankers in the USA also warned of an impending economic slowdown,
- saying that persistently high inflation will dent consumer spending and most likely drag the world’s largest economy into a recession next year.
- The market expects the Fed to deliver a more moderate 50 basis point rate hike at its December meeting following four straight 75 basis point increases,
- though questions on how long the central bank will need to tighten remain.
- Crude oil futures traded near $74/bl after falling for three straight sessions.
- Prices remaining under pressure as economic warnings from major US banks weighed on the demand outlook and hurt risk assets.
- The US oil benchmark is hovering near its lowest levels after JPMorgan CEO Dimon said, inflation and high rates, would most likely drag the world’s largest economy into a recession next year.
- Investors also fretted about the prospect of higher interest rates as surprisingly strong US services and jobs data bolstered the case for further monetary tightening.
- These factors have overshadowed market optimism stemming from easing Covid restrictions in top crude importer China.
- Gold remained under pressure below $1800/oz after its recent decline to around $1,770/oz
- Bullion facing renewed pressure from a resurgent US dollar after better-than-expected US services activity data suggested the Federal Reserve could raise interest rates for longer to cool demand.
- The November ISM Services data, along with the solid November jobs report released last week, pointed to a resilient economy and bolstered the case for further monetary tightening in the US.
- Still, the market is expecting the Fed to deliver a more moderate 50 basis point rate hike at its December meeting following four straight 75 basis point increases,
- BUT Questions on how long the central bank will need to tighten remain.
- Higher interest rates dampen gold’s appeal to investors as they raise the opportunity cost of holding non-yielding bullion.