The ZAR traded in a narrow range ahead of Fed Chair Powell’s testimony as well the SA cabinet reshuffle.
The Rand continued to drown out recent volatility as market makers allowed for orders to be filled both sides of the range
- Volatility have decreased significantly the last few sessions in anticipation of Powell and the US Jobs report on Friday
- The NFP attracting significant attention, especially after the surprise last month.
- The spike setting a sharp decline in risk assets and a nearly 60bps spike in the US 10YT yield.
- Powell is also set for 2 days of testimony before the House and Senate
Powell appears before Congress this week as part of semi-annual testimony on monetary policy.
- Democratic legislators in particular have been worried that the Powell Fed risks dragging down the economy with its determination to fight inflation.
- This important as a recession in 2023, cold likely result in defeat for the Democrats in the 2024 General election.
- Markets also have been torn between wanting the Fed to bring down inflation and being worried that it will go overboard.
- Locally, Rampahosa’s reshuffled largely ignored by the market as the electricity crises continues.
- The appointment of SA’s first electricity minister, entrusted to bring an end to load shedding and seen as a market positive.
- However, Risk to the ZAR remains Powell tonight, and we expect some local hedging of bond portfolios to drive the ZAR weaker.
- A test of 18.3100 and a break brings 18.5000 back on the table.
Data this week
- 11H30 : SA GDP GROWTH +2.2% EXPECTED VS +4.1% PREVIOUS
- 17H00 DAY 1 : FED CHAIR JEROME POWELL CONGRESSIONAL TESTIMONY.
- 15H15 US ADP (PRIVATE PAYROLLS) +195k EXPECTED VS 106K PREVIOUS
- 15H30 US BALANCE OF TRADE -$69BN EXPECTED VS -$67BN PREVIOUS
- 17H00 DAY 2 : FED CHAIR JEROME POWELL CONGRESSIONAL TESTIMONY.
- 11h00 : SA CURRENT ACCOUNT -R17BN VS -R18BN
- 15H30 : US WEEKLY JOBLES CLAIMS 195K EXPECTED VS 190K PREVIOUS
- 15H30 : US NON FARM PAYROLLS +200K EXPECTED VS +517K PREVIOUS
- 15H30 US UNEMPLOYMENT RATE 3.4% EXPECTED VS 3.4% PREVIOUS
Market Movement Today:
- The USDZAR continuing to find strong support in the lower 18.2000 -18.1000 areas,
- This morning we see importers buying Dollar ahead of the European open;
- Bid’s appearing to drive the USD higher ahead of key event risk this week.
- Powell’s testimony taking centre stage this week, followed by the NFP on Friday.
- The jobs report proved a shocker last month and basically set the house on fire for risk assets.
- Rates markets repricing the Fed’s terminal rate higher resulting in a sell off in Bond prices as well as stocks and currencies,
- All in favour of the SAFE-HAVEN Dollar.
- Technically a target of 18.3100 remains in range and a break opens up 18.4500 to 18.5000 (previous resistance) also in play.
- However, dovish data reverses all the panic, and will confirm that the FED is close to the end of its hiking cycle.
- Implying the H2 of 2023, will once again be positive for Risk Assets and the ZAR.
- This morning at 11h30, SA GDP likely to have short term market volatility, but nothing compared to Powell and NFP.
- Traders likely to be in risk off mood, (cautionary approach) ahead of Friday .
- The data likely to drive the next directional phase of the ZAR .
- We expect customary bond hedging to drive prices and we don’t anticipate large ZAR gains this week.
- With that in mind, importers are encouraged to act on any ZAR strength and dips towards R18/$.
- Trade : levels near R18/$, present opportunities for short term importers to exact cover and exporters to utilise both FX options and FEC’s.
- SHORT TERM IMPORTERS ARE ENCOURAGED TO LOOK AT DERIVATIVES TO IMPROVE RATES FOR NEAR TERM INVOICING.
- USDZAR : Expect a range 18.1300-18.3100
- Importers 18.19000-18.1300
- Exporters 18.2500-18.3100
- EURZAR : Expect a range of 19.4000-19.5500
- Importers 19.4500-19.4000
- Exporters 19.5000-19.5500
- GBPZAR : Expect a range of 21.8100-22.0500
- Importers 21.8900-21.8100
- Exporters 21.9700-22.0500
- USDZAR 18.2300
- EURZAR 19.48000
- GBPZAR 21.9500
- President Cyril Ramaphosa announced several key changes to his administration on Monday night.
- The changes largely targeted at dealing with SA’s escalating energy crisis and improving governance in the country.
- Ramaphosa appointed Dr Kgosientsho Ramokgopa to the role of ‘Minister of Electricity’.
- This is one of the key new ministerial roles in government and will fall within the presidency.
- Ramaphosa said the “Minister in the Presidency responsible for resolving the electricity crisis”
- has “the primary task … to significantly reduce the severity and frequency of load shedding as a matter of urgency”. EWN
- South African tax authorities were not able to find any record that Hazim Mustafa, the Sudanese businessman who paid $580 000 in cash to President Cyril Ramaphosa’s Phala Phala farm,
- declared the cash he brought into the country in December 2019.
- DA leader John Steenhuisen filed a Promotion of Access to Information Act (PAIA) request with the South African Revenue Service (SARS) in December 2022.
- Steenhuisen asked for a copy of the declaration form after Mustafa produced a document that he showed journalists in an interview with Sky News, but would not hand it over.
- Markets also eagerly awaiting the SA GDP report at 11h30.
- Recall, the SA economy grew by a notable 4.1% from a year ago in the third quarter of 2022, accelerating from a 0.2% growth in the previous period and beating market estimates of a 2.8% rise.
- It was the strongest growth rate since the second quarter of 2021
- US stocks cautiously awaited Federal Reserve Chair Jerome Powell’s congressional testimony for further guidance on the central bank’s tightening plans.
- Futures contracts tied to the three major indexes were all trading near breakeven.
- On Monday, the Dow and S&P 500 gained 0.12% and 0.07%, respectively, while the Nasdaq Composite lost 0.11%.
- US stocks initially rallied after Goldman Sachs initiated coverage of Apple with a buy rating, before giving up most of the gains as fears about further monetary tightening resurfaced.
- Investors now look ahead to Powell’s comments on Tuesday and Wednesday, as well as the key monthly jobs report on Friday. Bloomberg
- The yield on the US 10-year note, seen as a proxy for global borrowing costs, bottomed around 3.9%, moving away from an almost four-month peak of 4% touched last week.
- Market participants are waiting to see if this week’s Fed Chair Jerome Powell’s testimony to the Senate and House committees reflects recent hawkish rhetoric from other Fed policymakers.
- The nonfarm payrolls report on Friday will also provide a clearer picture of the jobs market while giving further insight into the direction of the Fed’s interest rate rises.
- Markets have now priced for interest rates peaking at around 5.5% by June. Reuters
- The Dow added 40 to 33,431
- The SP500 added 2.78 to 4,048
- The Nasdaq declined -14 to 11,675
: image: Trading economics
- The dollar index was subdued around 104.2 on Tuesday as investors cautiously awaited Federal Reserve Chair Jerome Powell’s congressional testimony on Tuesday and Wednesday.
- The testimony likely to provide further guidance on the central bank’s tightening plans.
- Investors also looked ahead to the February jobs report on Friday that could influence how aggressive the Fed will need to be in the upcoming meetings.
- Markets are expecting the central bank to raise interest rates by another 25 basis points at its March meeting in light of stronger-than-expected US economic data.
- But analysts remain divided on what the likely peak for rates could be. FX news
- Asian markets drifting higher ahead of Fed chairman Powell’s 2 day congressional testimony and the path for interest rates in 2023.
- In Japan, the Nikkei 225 rose 0.15% to around 28,280, hitting multi-month highs.
- But market caution capped gains as investors continued to grapple with the prospect of further central bank policy tightening.
- Investors also digested data inflation-adjusted real wages in Japan fell by 4.1% in January from a year ago,
- It was the largest decrease since May 2014 as surging inflation far outpaced nominal wage growth.
- In Australia, the ASX 200 Index rose 0.49% to close at 7,365 on Tuesday.
- The index hitting its highest levels in over two weeks as the RBA delivered a widely expected 25 basis point rate hike, allaying market fears about any surprise hawkish move.
- Investors also digested data pointing to robust retail and trade activity in Australia.
- The economy stayed resilient in the face of rising interest rates and global economic uncertainties. Reuters
- WTI crude futures rose toward $81/bl on Tuesday.
- Prices reaching the highest levels in over five weeks ahead of a congressional testimony from Federal Reserve Chair Jerome Powell.
- Oil prices have now advanced for the sixth straight session, underpinned by optimism over China’s demand recovery.
- Also, Russia’s plan to reduce supply significantly in retaliation to Western sanctions.
- Investors also took note of reports about a growing rift between two of OPEC’s biggest producers, Saudi Arabia and the United Arab Emirates.
- Thus sparking fears of a crack in the cartel’s policy which could lead to more supplies. Gulf Energy news
- Gold steadied near $1,850/oz on Tuesday.
- Bullion traders cautiously awaited Federal Reserve Chair Jerome Powell’s congressional testimony on Tuesday and Wednesday for further guidance on the US central bank’s monetary policy.
- Traders also looked ahead to Friday’s monthly US jobs report, which could influence the Fed’s tightening range in the upcoming meetings.
- Spot gold was little changed at $1 845.34 an ounce as of 8:52 a.m. in Singapore, after falling 0.5% on Monday.
- The Bloomberg Dollar Spot Index was flat, and 10-year US Treasury yields climbed toward 4%. Silver and platinum were steady, while palladium declined. Bloomberg