The ZAR weakened on the back of a continuation of Friday’s Risk off sentiment, following the higher than expected US jobs report.
The Rand continued to weaken and traded as low as 17.7000, before finding some support after a brief rally in US stocks.
- Markets now turning their attention to Fed Chair Jerome Powell’s speech at the Economic club of Washington.
- Traders looking for clues about the central bank’s future tightening path.
- This morning, US stock futures were unchanged in early Asian Trading.
- The ZAR appears to be benefiting from this early morning lack of activity with a particularly narrow range in Asian trading.
- Traders happy to book some profits and we opening 10 cents stronger off yesterday’s USDZAR high’s.
- The yield on the US 10YT also spiking above 3.60%, levels not see in over a month.
- The rise supporting the Dollar that also rose above 103.50 after gaining more than 2% in the last 3 sessions.
- Investors reassessed the outlook for monetary policy as stronger-than-expected US jobs data suggested the Fed could tighten further.
- Investors now see the Fed raising the fed funds rate to 5%-5.25%, with a 25 bps hike in March and May before pausing.
- But, Markets and Traders are once again in a standoff with the FED, and on the future path of interest rates,
- with traders betting on a rate cut later this year while the FED reaffirmed its view that interest rates will stay higher for longer.
Data this week
- Earlier this morning the SARB reported on South Africa’s Reserve situation.
- It reported, Foreign exchange reserves in South Africa increased to a new record high of $61.864 billion in January of 2023.
- It was up from the $60.57 billion in the previous month.
- The latest figure mainly reflected the proceeds from foreign borrowings amounting to USD 327 million from KFW Development Bank.
- Analysts also citing the rise in the Gold price and valuation adjustments due to the depreciation of the US dollar and asset price movements.
- These factors were partially offset by foreign exchange payments made on behalf of government. source: South African Reserve Bank
- 08H00 SA FOREIGN EXCHANGE RESERVES $61BN EXPECTED VS $60.75BN PREVIOUS
- 15H30 : US TRADE BALANCE -$68.BN EXPECTED VS -$61.5BN PREVIOUS
- 19H40 : FED CHAIR POWELL SPEECH : THE ECONOMIC CLUB OF WASHINGTON
- 14h00 : US MORTGAGE APPLICATIONS – PREVIOUS WAS -9%
- 11H30 : SA MINING PRODUCTION -4.4% EXPECTED YOY VS -9% PREVIOUS
- 11H30 : SA GOLD PRODUCTION -3.5% CONSENSUS YOY VS -4.6% PREVIOUS
- 11H30 : SA MANUFACURING PRODUCTION -2.5% EXPECTED YOY VS -1.1% PREVIOUS
- 15H30 “ US WEEKLY JOBLESS CLAIMS +194K EXPECTED VS 183K PREVIOUS
- 09H00 : UK GDP 0.4% EXPECTED YOY VS 1.9% PREVIOUS
- 17H00 : US MICHIGAN CONSUMER SENTIMENT 64.9 EXPECTED VS 64.9 PREVIOUS
- 19H00 : US FED GOVERNOR CHRIS WALLER SPEAKS .
Market Movement Today:
- The ZAR opening stronger after a negative session for the local unit on Monday.
- The unit touching 17.7000 before recovering in early trading on the back of mild profit taking.
- Traders are waiting for Powell’s speech tonight at the Economic Club of Washington.
- Language will once again be key, and traders will look for clues on future rate policy.
- Last week, post the FOMC, Powell used the term DISINFLATION, and that it has begun,
- But after Friday’s Jobs report ,the market keenly await his language.
- The US NFP obviously rattled markets, with its higher than expected print, resulting in more gains for the dollar.
- However, the Chairman noted the cumulative effects of monetary policy, especially the 18 month lag, and that that appears to be coming through in the economy.
- Recent CPI data has also shown signs of cooling and it’s likely Powell will once again mention this, even though the labour market remains robust.
- This morning we, expecting some early session weakness as market makers clear order books with some negative rotation.
- However in the absence of any negative news, we expect a “small range session”, as traders unlikely to place large directional trades ahead of tonight’s speech.
- Overall the lower inflationary trends and the current weaker ZAR present great opportunities for exporters.
- TRADE : SELL USDZAR on rallies.
- USDZAR : Expect a range 17.5000-17.7000
- Importers 17.5500 -17.5000
- Exporters 17.6500-17.7000
- EURZAR : Expect a range of 18.7800-19.0200
- Importers 18.8400-18.7800
- Exporters 18.9600-19.0200
- GBPZAR : Expect a range of 21.0200-21.3400
- Importers 21.1000-21.0200
- Exporters 21.2600-21.3400
- USDZAR 17.6100
- EURZAR 18.9200
- GBPZAR 21.2200
- President Cyril Ramaphosa will deliver the State of the Nation Address (SoNA) on Thursday, 9 February 2023 at 7pm.
- The address will take place before a joint sitting of the two houses of Parliament.
- The address is an important milestone as it brings certainty to the country’s political, social and economic landscape.
- In the address, President Cyril Ramaphosa will set out government’s key policy objectives and deliverables for the year ahead. www.gov.za
- Economists have called for President Cyril Ramaphosa to make sweeping changes to his Cabinet in a bid to boost the country’s ailing economy.
- Talks of a Cabinet reshuffle have gained traction after the governing ANC recently elected a new national executive committee.
- Several ANC bigwigs, who also double as Cabinet ministers, failed to make the cut for the party’s highest decision-making body between conferences.
- This has left Ramaphosa in a tight spot regarding the future of his executive with some calls from the ANC to include the new names in the Cabinet.
- The Minister of Mineral Resources and Energy, Gwede Mantashe, highlighted the severe impact of load shedding saying it cost the country’s economy R1 billion per day.
- Mantashe addressed delegates at the opening of the 2023 Investing in African Mining Indaba in Cape Town on Monday.
- Mantashe reflected on the severe electricity supply disruptions and their impact on the country, particularly in 2022.
- In November, mining production contracted by 9%, marking a 10th consecutive month of contraction in volumes produced. EWN
- The Turkish earth quake
- The SA ambassador to Turkey, confirmed on Tuesday, that a prison with 7 South Africans inside collapsed in the country during Monday’s deadly series of earthquakes.
- She said their fate was not yet known.
- The ambassador said no other South Africans are reported to have been caught up in the quake, but the prison is a concern. NEWS24
- In regular trading on Monday, the Dow shed 0.1%, the S&P 500 lost 0.61% and the Nasdaq dropped 1%.
- CNBC reporting that 9 of the 11 S&P sectors finishing lower led by communication services and technology.
- The decline comes as investors reassessed the outlook for monetary policy as stronger-than-expected US jobs data suggested the Fed could tighten further.
- BUT Powell’s disinflation remarks during last week’s meeting signaled a dovish pivot.
- US stock futures were little changed on Tuesday as investors cautiously awaited Federal Reserve Chair Jerome Powell’s speech at the Economic Club of Washington for further clues about the central bank’s tightening path.
- Futures contracts tied to the three major indexes were all trading near breakeven.
- The yield on the US 10-year, seen as a proxy for global borrowing costs, topped 3.6%.
- It is a level not seen in almost a month, as signs of a tight jobs market and a still resilient economy fanned concerns about a hawkish Federal Reserve.
- Investors now see the Fed raising the fed funds rate to 5%-5.25%, with the world’s most influential central bank delivering a 25 bps hike in March and May before pausing.
- The Dow declined 34 points to 33,891
- The Sp500 fell 25 to 4,111
- The Nasdaq fell 119.5 to 11,887
- The US dollar steadied around 103.5, as investors cautiously awaited Federal Reserve Chair Jerome Powell’s speech.
- He is due to talk at the Economic Club of Washington for further clues about the central bank’s policy plans.
- Investors reassessed the outlook for monetary policy as stronger-than-expected US jobs data suggested the Fed could tighten further,
- though Powell’s disinflation remarks during last week’s meeting signalled a dovish pivot.
- Asian markets lower following another negative session on Wall Street.
- In addition, the Reserve Bank of Australia hiked rates to a decade high on Tuesday morning.
- The RBA lifted the cash rate by 25bps to 3.35% at its February meeting, matching market consensus.
- The move was the ninth rate rise since May last year, taking borrowing costs to a level not seen since September 2012.
- While dropping the previous guidance that it was not on a pre-set path, the board flagged further hikes as inflation in Australia remains too high.
- The ASX 200 Index fell 0.46% to close at 7,504 on Tuesday, sliding for the second straight session.
- Australian shares also tracked Wall Street lower as investors reassessed the outlook for monetary policy.
- After stronger-than-expected US jobs data vying with Federal Reserve Chair Jerome Powell’s disinflation remarks.
- In Japan, the Nikkei 225 rose 0.2% to above 27,750, extending recent gains, with technology and financial stocks leading the charge.
- Japanese stocks benefiting from a weaker Yen which supports the country’s export-heavy economy and makes Japanese assets more attractive to foreign investors.
- The currency weakened on reports that the government had approached BOJ Deputy Governor Amamiya about succeeding Kuroda as the new central bank head.
- Traders betting expectations that the BOJ’s ultra-easy monetary policy would continue. Reuters
Crude oil rallied on the back of the major earth quake in Turkey.
- Supply disruptions supporting prices after operations at the Ceyhan oil terminal in southern Turkey, which can export up to 1 million barrels of crude per day,
- were suspended as a precaution after a major earthquake hit the region.
- Brent crude futures rose toward $82/bl barrel on Tuesday, rising for the second straight session on supply concerns and optimism about China’s demand recovery.
- On the demand side, the IEA said that China’s economy could be poised for a stronger-than-anticipated rebound that will boost demand for crude.
- Goldman Sachs also raised its forecast for Chinese oil demand in the fourth quarter of 2023 to 16 million bpd, up 400,000 bpd from an earlier estimate.
- Elsewhere, the European ban on seaborne imports and price caps for Russian oil products also came into effect on Sunday. Gulf Energy News
- Gold remained below $1900/oz clocking in at $1887/oz on the back of a resurgent Dollar.
- Bullion remaining near its lowest levels in a month amid a general dollar strength.
- Rising Yields supporting the Dollar at the expense of Gold after the stronger than expected US jobs report.
- The stronger-than-expected US jobs data suggested the Federal Reserve has more room to hike interest rates.
- Investors now look ahead to Fed Chair Jerome Powell’s speech before the Economic Club of Washington on Tuesday to gain clarity on future policy plans.
- Gold remains inversely correlated vs the Dollar and higher interest rates. Kitco metals report