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GOOD MORNING
The ZAR weakened sharply on the back of a sharp spike in US yields.
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SUMMARY
The Rand crashed through the R19/$ after US treasury yields spiked higher following a stronger than anticipated Private payrolls report.
- The local unit losing nearly, 2.4% after the ZAR weakened from R18.7000/$to R19.1400/$ (intraday levels).
- The benchmark 10YT yield jumped more than 20bps to trade at 4.08% before retreating ant selling at 4.03%.
- The moves on the back of higher than anticipated ADP (private jobs) indicating a healthy jobs market that continues to expand in the face of higher rates.
- Traders speculating that today’s key NON FARM PAYROLLS report might be higher than the expected +225,000 jobs for June.
- A higher than expected number adds fuel to the fire and we can expect even higher yields and more support for the Dollar.
- In addition to the strong ADP report, we also had higher than expected US ISM services data.
- NB: Services inflation continue to be a “sore point” to FED officials and are mentioned quite often in governor speeches.
- It is with this in mind that this afternoon poses significant risk to financial markets.
- A lower than expected NFP jobs report, could cool the temperature in the room and slow down the Dollar advance (i.e. be ZAR supportive)
But
- Another “Hot report” could send yields even higher and drive the ZAR lower, with recent lows in the higher 19’s on the cards.
Data This week
FRIDAY
- 14H30 : US NON FARM PAYROLLS expected +225K VS +339K PREVIOUS
- 14H30 : US UNEMPLOYMNET RATE 3.7% UNCHANGED
Market Movement Today:
- The Rand declined sharply after the release of stronger than expected Jobs report.
- The local unit losing more than 2% after stronger than expected ISM data as well as a jump in private payrolls.
- The yield in the US10YT spiking sharply above 4%.
- Traders becoming more and more convinced of the seriousness of the FED’s rhetoric around rate hike in 2023.
- Up to now markets have been quite relaxed for a FED pause and some even calling for rate cuts in 2023.
- The stickiness of inflation, demonstrated by higher than expected Services ISM data as well as the strong jobs market, allowing traders to re-enter rate hike bets.
- What does this mean for the ZAR?
- Well, in a global environment where rate hikes are a form of Quantitative Tightening (QT) and also the huge demand from the US Treasury via their issuance programme,
- we’ve seen risk assets under pressure.
- Assets like stocks and high yielding emerging currencies generally Underperforming this environment.
- This time will be no different, and we expect the ZAR to lose ground as long as the FED hike rates.
- The Mexican Peso also losing ground as the Peso declined more than 2% over the last 2 session.
- Indicating that it is not only the ZAR but the EMFX basket that is coming under pressure due to higher yields.
Today we have the US NON FARMS report, and this likely to either confirm the US dollar move or reverse it.
- Trade : BUY USDZAR (i.e. SELL ZAR)
Markets this morning
- USDZAR 19.0700
- DOLLAR 103.10
- EURUSD 1.0897
- SP500 4,410
- GOLD 1910
- US10YT 4.06%
Expected Ranges:
- USDZAR : Expect a range 18.9600-19.2100
- Importers : 19.0100-18.9600
- Exporters : 19.1600-19.2100
- EURZAR : Expect a range of 20.6800-20.8800
- Importers : 20.7200-20.6800
- Exporters : 20.8400-20.8800
- GBPZAR : Expect a range of 24.1400-24.4900
- Importers : 24.2100-24.1400
- Exporters : 24.4200-24.1400
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OPENING RATES
- USDZAR : 19.0700
- EURZAR : 20.7800
- GBPZAR : 24.3200
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SOUTH AFRICA
BRICS
- The Economic Freedom Fighters (EFF) have accused ANC of intolerance for not allowing them to be part of the BRICS (Brazil, Russia, India, China, and South Africa) Political Party Forum.
- Reports have emerged that the governing party opted to snub the EFF from the forum, scheduled to take place from 18 to 20 July.
- Ruling parties from the BRICS nations are expected to be part of the forum. Source EWN
ESKOM
- Stage three load shedding has kicked in from 4pm on Thursday afternoon until midnight when power cuts will be suspended.
- Eskom says it’s been implementing stage three power cuts in the evenings as a result of higher demand.
- Stage one load shedding will then start at 5am in the morning until 4pm.
- Eskom says this pattern will be repeated on Friday and Saturday. Source : News24
GLOBAL MARKETS
Stocks
Global stocks declined following the sharp rise in US yields.
- On Thursday, the Dow slumped 1.07%, the S&P 500 dropped 0.79% and the Nasdaq Composite tumbled 0.82%, with all 11 S&P sectors ending lower led to the downside by energy and consumer discretionary.
- Those losses came as data from ADP showed that private sector employers added 497,000 jobs in June, far exceeding the 220,000 estimate and reinforcing expectations for a Fed rate hike this month.
- US stock futures inched lower on Friday as investors braced for a key monthly jobs report that could influence the outlook for Federal Reserve monetary policy.
- Futures contracts tied to the three major indexes were all down about 0.1%.
Investors now look ahead to the June payrolls report on Friday, with market expectation for + 225,000 jobs. |Source:Reuters
Bonds
Treasury yields higher following the better than expected US economic data.
- The yield on the US 10-year Treasury note passed the 4% threshold for the first time since March 2nd.
- Yields higher after the release of private payrolls data, indicating that the labour market in the world’s largest economy remains robust, despite the Federal Reserve’s aggressive policy tightening.
- The ADP employment report showcased accelerated private job growth, reaching a level not seen in over a year, while an uptick in jobless claims was still consistent with a tight labour market.
- The minutes from the June FOMC policy-setting meeting revealed that a majority of policymakers were in agreement regarding the need for further interest rate hikes throughout 2023, as inflation remained significantly above the Federal Reserve’s 2% target and the labour market maintained its strength. |Source : Trading economics
Yesterday
- DOW – 366 to 33,922
- SP500 -35 to 4,4411
- NASDAQ -112 to 13,769
 image: Trading economics
OVERNIGHT HEADLINES
Asian markets
Asian markets sink on rate hike fears.
- Asian equity markets fell sharply on Friday, tracking losses on Wall Street overnight after strong US jobs data reinforced expectations that the FED will lift rates further in July.
- Traders speculating that other major central banks to follow suit, draining even more liquidity from the global financial system.
- The S&P/ASX 200 and Kospi indexes sank 1.8% and 1.5%, respectively, while the Nikkei 225, Hang Seng and Shanghai Composite indexes also posted notable declines.
- In Japan, the Nikkei 225 Index fell 0.5% to around 32,600.
- The index sliding for the fourth straight session, taking cues from a weak lead on Wall Street.
- The Sell-off starting after strong US jobs data fuelled fears that the FED will tighten policy further in July.
- Technology and financial stocks led the decline. |Source : Reuters
Energy
Oil prices continue to rise on the back of OPEC+ supply cuts and stronger than expected US Jobs data.
- US WTI crude futures steadied near $72/bl on Friday and were set to post weekly gains.
- Supply pressures outweighed concerns about higher interest rates that could dampen global growth and energy demand.
- Earlier this week, Saudi Arabia said it would extend a July production cut of 1 million barrels per day through August, while Russia said it would cut exports by 500,000 bpd next month.
- Elsewhere, EIA data showed that US crude and gasoline inventories declined more than expected last week amid higher demand.|source : Gulf News
Metals
Precious metals lower following the bumper US ADP jobs report and fears of more rate hikes.
- Gold held around $1,910/oz an ounce on Friday, and barely “survived” the Dollar onslaught .
- Bullion was set to post its fourth straight weekly decline as strong US jobs data bolstered bets that the Federal Reserve will lift rates further in July.
- A report from the ADP showed that more than twice the amount of expected job creations were added in the US economy in June.
- The data reinforced expectations of a 25bps rate hike from the Fed this month, adding leeway for policymakers to curb inflation without triggering a sharp contraction.
- Looking ahead, investors await the monthly US payroll report for more clues on the monetary policy outlook. |source : Kitco
Currencies
The Dollar rebounded on the back higher US yields after the 10YT cracked the 4% level.
- The US dollar index steadied around 103.1 on Friday as investors cautiously awaited a key US jobs report that could influence the outlook for Federal Reserve monetary policy.
- Data released on Thursday showed that private companies in the US added 497K jobs in June, the most since February 2022 and far exceeding forecasts of 228K, pointing to a still tight labour market.
- Employers also announced the least job cuts since October and continuing claims fell to the lowest in four months.
- Moreover, the ISM Services PMI unexpectedly jumped to 53.9 in June of 2023, pointing to the strongest growth in the services sector in four months, and well above expectations of 51.
- The strong jobs and services data bolstered bets that the Fed will lift rates further in July. | source Trading economics
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