GOOD MORNING
The ZAR weakened aggressively on the back of Fed chair Jerome Powell’s comments that interest rates might have to rise further.
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SUMMARY
The Rand reached a weakest level of 18.6400 , after Jerome Powell said that :
The Federal Reserve is likely to increase the pace of rate hikes if incoming data suggests tougher measures are needed to control inflation,
Powell also noted that the ultimate level of interest rates may be higher than previously anticipated.
The comments sent markets into a tailspin with stocks declining as well as the Dollar spiking to 3 month high’s.
- Across the globe risk assets retreating , after the US10YT briefly exceeded the 4% level.
- The SP500 falling nearly 100 points, to 3980 on the remarks
- The DXY spiking to 105.80 , taking both the Euro and the Pound lower.
- Gold also declined to $1800/oz level ;
All of this creating a perfect storm for the ZAR to lose ground against the Dollar.
The ZAR reaching levels last seen during the Covid-19 pandemic.
Markets now anxiously waiting for the Powell’s 2nd day of testimony.
Data this week
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 ZAR declined sharply in line with global risk assets following Jerome Powell’s Senate banking committee testimony.
- In the first of his 2 day testimony Powell called for higher rates to combat inflation.
- The result a sharp drop in risk assets as the SP500, GOLD, EMFX all well victim to a surging Dollar.
- Powel also mentioned the strong US jobs market and the pressure it adds to the inflationary picture.
- The comments making Friday’s NON FARMS even more important.
- Recall, last month’s jobs report shocked the market and set off the current RISK OFF environment.
- The US 10YT exceeding 4% as risk assets declined l in favour of the SAFE-HAVEN Dollar.
- This morning we opening a multi-year highs (last seen during the covid pandemic) at 18.5800
- It is not unusual for some early session profit taking, before Powell speaks again this afternoon.
- A DROP IN USDZAR TOWARDS 18.5000, PRESENTS BUYING OPPORTUNITIES FOR IMPORTERS.
- The sentiment firmly RISK OFF, and we can likely see more weakness leading into Friday’s NFP report.
- Trade : we advise 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 18.1800-18.8700
- Importers 18.4100-18.1800
- Exporters 18.6400-18.1800
- EURZAR : Expect a range of 19.3900-19.7800
- Importers 19.6500-19.7800
- Exporters 19.5200-19.3900
- GBPZAR : Expect a range of 21.7500-22.2000
- Importers 21.9000-21.7500
- Exporters 22.0500-22.2000
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OPENING RATES
- USDZAR 18.5800
- EURZAR 19.5800
- GBPZAR 21.9800
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SOUTH AFRICA
Eskom renewables
- The Department of Mineral Resources and Energy is looking for potential bidders to provide 513MW of battery storage for SA’s power system.
- The department said it launched a request for proposal, with potential bidders officially invited to participate in the procurement programme from Tuesday.
- This follows a ministerial determination that was gazetted for the battery storage on 25 September 2020.
- Bidders would also have to contribute to “socio-economic and environmentally sustainable growth”. News24
Loadshedding and Diesel.
- As supermarket diesel bills top R1bn, it’s not as simple as ‘going solar’
- Executives at food retailers are making a rational decision to use diesel.
- They will also have deliberated at length whether load shedding is a two-year problem or a 10-year one.
- During the latter part of 2022, the country’s two largest supermarket groups – Shoprite and Pick n Pay – spent a combined R906 million on diesel for generators at stores.
- Woolworths spent R90 million (primarily at its Food stores), taking that total to R1 billion*.
- This is an astonishing number across roughly 3 000 grocery stores in South Africa,
- and one that was concentrated in the last few months of the year where elevated levels of load shedding (above Stage 4) were in place practically continuously. Money web
SA ECONOMY
- Following the decline in GDP as the economy struggles to cope with load shedding Nedbank released a report on the financial health of SA citizens.
- It said,
- More clients have become financially distressed, as the Bank reports higher impairments in the home loans and vehicle financing divisions.
- SA banks are reporting an increase in profits from the endowment effect of higher interest rates and higher loans issued to clients.
GLOBAL MARKETS
Stocks:
- US stock futures steadied on Wednesday after the major averages fell sharply during Tuesday’s regular session.
- Earlier Federal Reserve Chair Jerome Powell indicated that interest rates may need to go higher for longer.
- In regular trading on Tuesday, the Dow tumbled 1.72%, the S&P 500 declined 1.53% and the Nasdaq Composite dropped 1.25%, with all 11 S&P sectors finishing lower.
- Those losses came as Powell said that the central bank would be prepared to increase the pace of rate hikes if data warranted.
- He also warned that the ultimate level of interest rates could be higher than previously anticipated. Investors now look ahead to more Fed commentary on Wednesday.
Bonds:
- The yield on the US 10-year Treasury note rose to 4% before easing back to 3.95%, remaining marginally below the three-month high of 4.07% touched on March 2nd.
- Investors assessed the pace of future rate hikes by the Federal Reserve.
- In a hearing before the Senate,
- Powell stated that recent hot economic data may force the central bank to increase interest rates ,
- at a more aggressive pace and that the terminal rate may be higher than previously anticipated.
- Despite the pullback in 10-year Treasury yields, the remarks drove investors to price a 60% chance of a 50bps interest rate hike instead of back-to-back 25bps increases.
- The Chairman also underscored that it will continue to rely on the latest data to gauge the extent of tightening.
- All of this underscoring the importance of the labour market data to be released Friday.
YESTERDAY
- The Dow declined 574 to 32,856
- The SP500 fell 62 to 3,986
- The Nasdaq fell 145 to 11,530
: image: Trading economics
OVERNIGHT HEADLINES
The Dollar
- The dollar index held above 105.5 on Wednesday, hovering its highest levels in three months.
- Federal Reserve Chair Jerome Powell offered a more hawkish outlook on monetary policy than markets anticipated.
- Powell warned that the ultimate level of interest rates could be higher than previously anticipated in light of stronger-than-expected economic data.
- Markets are now priced for a 70% chance of a 50 basis point rate hike in March, according to CME’s FedWatch tool, up from a 30% chance a day ago.
- The dollar scaled multi-month highs against all major currencies, with the most pronounced buying activity against the Australian dollar and Gold. FX news
Asian markets sharply lower following comments by Fed chair Jerome Powell, that rates will have to rise to combat inflation.
- In Japan, the Nikkei 225 was flat at 28,310, with Japanese shares struggling for traction following sharp losses on Wall Street overnight.
- Federal Reserve Chair Jerome Powell warned that the central bank would be prepared to move faster and that interest rates could peak higher if data warranted.
- Investors also digested data showing Japan posted a record current account deficit in January, while awaiting more economic data later in the day. REUTERS
Crude oil
- US WTI crude lower at $78/bl after losing more than 3.6% in the previous session.
- Federal Reserve Chair Jerome Powell warned that interest rates could peak higher if data warranted, raising concerns about a looming slowdown.
- OPEC Secretary-General Haitham Al-Ghais also said that slowing oil consumption in Europe and the US could threaten the market.
- In addition , Citigroup said that global supply is ample and demand remains low, adding to the bearish sentiment. GULF ENERGY NEWS
Gold
- Gold traded around $1,810 an ounce on Wednesday after losing nearly 2% in the previous session.
- Bullion sliding back to its lowest levels in over two months as Jerome Powell offered a more hawkish outlook on monetary policy than markets anticipated.
- Powell warned that the ultimate level of interest rates could be higher than previously anticipated in light of stronger-than-expected economic data.
- He also said that the central bank would be prepared to increase the pace of rate hikes if data warranted.
Meanwhile, Reserve Bank of Australia Governor Philip Lowe said the central bank is closer to reaching a point where it will be appropriate to pause interest rate increases as monetary policy has become restrictive.
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