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GOOD MORNING
The ZAR traded stringer on Tuesday, ahead of the much anticipated speech from Fed Chair Jay Powell.
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SUMMARY
The Rand grinded stronger ahead of Powell’s speech and managed to hold on to minor gains after Powell stated that ;
- “…the disinflationary process has begun, particularly in the goods sector..”
- He also added that the Fed has the tools to bring down inflation to its 2% target when speaking at the Economic Club of Washington.
- Powell mentioned the strong jobs market as a concern to inflation, and that the Fed would continue to raise rates until its objectives are met.
- Markets rallied on the news, as the key take away remains “INFLATION IS TRENDING DOWWARDS”
- The SP500 rebounding nearly 100 points to reach 4176 in New York trading .
- The dollar recovered to remain around 103, after the governor’s remarks were deemed less hawkish than expected.
- The 10YT remained at 3.66% as bond market remain fearful of the jobs numbers as well as the stronger than expected ISM data.
- In summary, it appears that the shock of the jobs data continues to linger, but that Powell’s comments eased fears of an over zealous FED.
- We expect risk assets to continue to track higher, albeit at a slower pace, as we now await the next US CPI print.
- Stable energy prices and in the US lower Gasoline prices likely to confirm the downward trend in inflation and yields and the Dollar likely to decline on the back of it.
- This will once again support high yielding FX, like the ZAR and other EMFX.
Data this week
TUESDAY
- 19H40 : FED CHAIR POWELL SPEECH : THE ECONOMIC CLUB OF WASHINGTON
- Fed Chair Jerome Powell reiterated that the disinflationary process has begun, but it has a long way to go and these are the very early stages.
- The Chair added that if the strong jobs market persists additional interest rate hikes will be needed if ti drives inflation higher .
WEDNESDAY
- 14h00 : US MORTGAGE APPLICATIONS – PREVIOUS WAS -9%
THURSDAY
- 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
FRIDAY
- 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 less than hawkish remarks by Fed chair Jerome Powell.
- Powell once again mentioned that the DISINFLARIONARY PROCESS HAS BEGUN.
- BUT, he added the latest jobs report will force the Fed to be vigilant in its fight to bring inflation down to 2%.
- The ZAR recovering to trade below 17.5000, but this appears to me more of a stop hunt play, as algo’s exploit market conditions in NY hours.
- Risk assets appeared to have shaken off the NFP woes caused on Friday and the SP500 once again rallying.
- The ZAR decline also appears to have stalled as well as the Dollar rally running into some head winds.
- Overall – INFLATION will drive this process and not the Jobs data.
- And …yes more jobs will create more demand but we must remember the effect that energy prices had on the CPI spike in 2022!
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- Currently – Inflation appears to be slowing down and this is highlighted by lower energy prices across the globe.
- Crude oil appears to be anchored around the $80/bl level , and this is significantly lower than the $112/bl (US CRUDE) reached in May 2022.
- In fact energy prices are down 35% vs 2022.
- AND…Energy makes up more than 30% of the CPI basket, resulting in a continuation of the disinflation process.
- With this in mind, we expect the inflation trend to continue lower and this will force the Fed to change course.
- It will be risk asset supportive and the ZAR will benefit from this throughout 2023.
- Thus the current weaker ZAR present great opportunities for exporters.
- TRADE : SELL USDZAR on rallies.
Expected Ranges:
- USDZAR : Expect a range 17.3900-17.6600
- Importers 17.4800-17.3900
- Exporters 17.5700-17.6600
- EURZAR : Expect a range of 18.6500-18.9500
- Importers 18.7500-18.6500
- Exporters 18.8500-18.9500
- GBPZAR : Expect a range of 20.9500-21.3100
- Importers 21.0700-20.9500
- Exporters 21.1900-21.3100
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OPENING RATES
- USDZAR 17.5200
- EURZAR 18.8200
- GBPZAR 21.1300
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SOUTH AFRICA
SA TOURISM
- The chairperson of Parliament’s Tourism Portfolio Committee, Thandi Mahambehlala, on Tuesday ordered an immediate stop to SA Tourism’s;
- …pending sponsorship deal with English football club Tottenham Hotspur.
- After a marathon six-hour briefing by SA Tourism on Tuesday, Mahambehlala declared the tourism portfolio committee was putting an immediate stop to the process.
- But Tourism Minister Lindiwe Sisulu said Parliament doesn’t have that authority.
- She added, “We understand the view of the committee and the committee chair, but unfortunately this being a matter of national interest,
- BUT only the president can make that decision and I think we owe it to him to make the final decision,” said Sisulu.
- Mahambehlala disagreed . NEWS24
ESKOM
- Outgoing Eskom CEO Andre de Ruyter described the load shedding outlook for 2023 as extremely bleak.
- De Ruyter and outgoing minerals council of South Africa CEO, Roger Baxter, participated in a discussion at the Investing in African Mining Indaba on Tuesday.
- The talk was themed: South Africa’s Energy Landscape.
- De Ruyter said that 2023 will still be a difficult one in terms of the country’s power supply.
- At the same time, De Ruyter added that if Eskom had enough money for diesel, load shedding would not be such a major problem.
- He said that the billions Eskom is owed by municipalities are what stands between power cuts and resolving the utility’s generation challenges
- – adding that this could save up to two levels of load shedding. EWN
MINING SECTOR
- Ramaphosa attended the second day of the investing in African Mining Indaba in Cape Town.
- He highlighted the importance of the mining sector in the country’s economic growth and job creation,
- and said mining revenues help the government to provide services to the citizens of the country.
- “The mining sector is an important contributor to the growth of our economy but also to job creation and retention.
- It accounted for nearly half a million direct jobs and close on to a million indirect jobs,” he explained.
- Ramaphosa emphasised that mining revenues in 2022 reached a record high of R1.18 trillion.
GLOBAL MARKETS
Stocks:
On Tuesday, the major US markets initially sold off, before reversing in the afternoon session.
- The Dow adding 0.78%, while the S&P 500 and Nasdaq rallied 1.29% and 1.9%, respectively.
- Powell’s comments about inflation reinforced bullish sentiment among investors, though his warning about further hikes kept markets on edge.
- Investors now look ahead to more earnings reports and a slew of economic data in the US.
- US stock futures were little changed on Wednesday after the major averages staged a late rally during Tuesday’s regular session.
- Jerome Powell said more rate hikes will likely be needed if the jobs market remains strong, but maintained that disinflation has begun.
- Futures contracts tied to the three major indexes drifted flat to slightly negative.
Bonds:
- The US 10-year yield topped 3.6%, as signs of a tight labour market and a still resilient economy fanned concerns about a hawkish Federal Reserve.
- Last week the employment report showed that job growth accelerated sharply in January.
- Also, the same time, ISM data pointed to a robust services sector, adding to concerns about persistent inflation and bolstering the case for more rate increases.
- 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.
- BUT, Wall Street and the Fed are again in a standoff on the future path of interest rates.
Yesterday
- The Dow added 265 to 34,155
- The SP500 gained 52 to 4,164
- The Nasdaq gained 226 to 12,113
 image : Trading economics
OVERNIGHT HEADLINES
The US Dollar
- The dollar declined but remained steadied above 103.
- The Buck under pressure in the previous session, as Federal Reserve Chair Jerome Powell’s latest remarks sounded less hawkish than markets anticipated.
- He said that more rate hikes will likely be needed and that the terminal rate could peak higher if the jobs market remains strong.
- Latest data showed that the US economy added 517K jobs in January, the most since July and well above the market expectations of 185K.
- At the same time, ISM data pointed to a strong services sector, adding to persistent inflation concerns and bolstering the case for tightening.
- Investors now look ahead to the next US CPI print. This will likely give a clear guidance regarding future Fed policy. FX news
Asian markets mixed following Jerome Powell’s speech to the Economic Club of Washington .
- Powell mentioned inflation is trending downwards but that the Fed intends to continue hiking rates to bring it down to 2%.
- In Japan, the Nikkei 225 fell 0.7% to 27,500, retreating from recent highs and weighed down by sharp losses in index heavyweights Nintendo and SoftBank Group.
- Investors also assessed Federal Reserve Chair Jerome Powell’s remarks who said more rate hikes will likely be needed if the jobs market remains strong.
- Earlier, Nintendo plunged more than 7% after the company slashed its sales forecast for the Nintendo Switch console.
- The Japanese yen also stabilized near 131/$ after facing heightened volatility in recent sessions.
- This after Powell’s latest remarks sounded less hawkish than markets anticipated.
- The yen tumbled earlier this week as robust US jobs data suggested the Fed had more room for interest rate hikes.
- In Australia, the ASX 200 rose 0.35% to close at 7,530 ending a two-day decline, with the mining sector leading the rebound.
- Australian shares also tracked a late-day rally on Wall Street as Federal Reserve Chair Jerome Powell said that disinflation has begun,
- But more rate hikes will likely be needed if the jobs market remains strong.
- On Tuesday, Australian stocks came under pressure after the RBA raised interest rates for the 9th consecutive meeting and said “further increases” would be needed.
Crude oil
- US WTI crude oil futures remained above $77/bl and Brent remained above $83/bl, after rallying for two straight sessions.
- Prices supported by industry data showing US crude inventories declined by 2.18 million barrels last week, defying forecasts for a 2.15 million barrel increase.
- Risk assets were also supported after Federal Reserve Chair Jerome Powell sounded less hawkish that markets anticipated.
- The US oil benchmark gained more than 5% in the past two sessions as suspended operations at a key oil terminal in Turkey due to the recent earthquake.
- Investors also remained optimistic about China’s demand recovery. Gulf energy news
Gold
- Gold recovered to trade $1,880/oz, rebounding from 1-month lows as Fed Chair Jerome Powell’s sounded less hawkish than markets anticipated.
- He said that more rate hikes will likely be needed and that the terminal rate could peak higher if the jobs market remains strong,
- but maintained that disinflation has begun.
- The slowdown in the US yields rally supporting bullion. as Bullion remains highly sensitive to the rates.
- NB: Higher interest rates raise the opportunity cost of holding non-yielding bullion and vice versa. Kitco metals
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