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GOOD MORNING
The ZAR traded in a narrow range ahead of Fed Chair Powell’s testimony as well the SA cabinet reshuffle.
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SUMMARY
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
Tuesday 7TH
- 11H30 : SA GDP GROWTH +2.2% EXPECTED VS +4.1% PREVIOUS
- 17H00 DAY 1 : FED CHAIR JEROME POWELL CONGRESSIONAL TESTIMONY.
Wednesday 8TH
- 15H15 US ADP (PRIVATE PAYROLLS) +195k EXPECTED VS 106K PREVIOUS
- 15H30 US BALANCE OF TRADE -$69BN EXPECTED VS -$67BN PREVIOUS
- 17H00 DAY 2 : FED CHAIR JEROME POWELL CONGRESSIONAL TESTIMONY.
Thursday 9th
- 11h00 : SA CURRENT ACCOUNT -R17BN VS -R18BN
- 15H30 : US WEEKLY JOBLES CLAIMS 195K EXPECTED VS 190K PREVIOUS
Friday 10TH
- 15H30 : US NON FARM PAYROLLS +200K EXPECTED VS +517K PREVIOUS
- 15H30 US UNEMPLOYMENT RATE 3.4% EXPECTED VS 3.4% PREVIOUS
Market Movement Today:
- The USDZAR continuing to find strong support in the lower 18.2000 -18.1000 areas,
- This morning we see importers buying Dollar ahead of the European open;
- Bid’s appearing to drive the USD higher ahead of key event risk this week.
- Powell’s testimony taking centre stage this week, followed by the NFP on Friday.
- The jobs report proved a shocker last month and basically set the house on fire for risk assets.
- Rates markets repricing the Fed’s terminal rate higher resulting in a sell off in Bond prices as well as stocks and currencies,
- All in favour of the SAFE-HAVEN Dollar.
- Technically a target of 18.3100 remains in range and a break opens up 18.4500 to 18.5000 (previous resistance) also in play.
- However, dovish data reverses all the panic, and will confirm that the FED is close to the end of its hiking cycle.
- Implying the H2 of 2023, will once again be positive for Risk Assets and the ZAR.
- This morning at 11h30, SA GDP likely to have short term market volatility, but nothing compared to Powell and NFP.
- Traders likely to be in risk off mood, (cautionary approach) ahead of Friday .
- The data likely to drive the next directional phase of the ZAR .
- We expect customary bond hedging to drive prices and we don’t anticipate large ZAR gains this week.
- With that in mind, importers are encouraged to act on any ZAR strength and dips towards R18/$.
- 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.
Expected Ranges:
- 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
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OPENING RATES
- USDZAR 18.2300
- EURZAR 19.48000
- GBPZAR 21.9500
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SOUTH AFRICA
- 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
GLOBAL MARKETS
Stocks:
- 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
Bonds:
- 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
YESTERDAY
- 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
OVERNIGHT HEADLINES
The Dollar
- 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
Crude oil
- 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
- 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
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