The ZAR bucked the global “yield” trend and strengthened to 17.6800 on optimism the Fed will reduce its hawkish stance.
The Rand gained to 2% to trade at 17.6800 after opening the session at 18/$. After Friday’s Dollar sell off following the NFP report.
- Traders citing a mixed US jobs report, and the SARB with scope to further increase interest rates after Governor Lesetja Kganyago said SA still has space to raise interest rates.
- He cited the need to get inflation expectations more anchored around the midpoint of its target range of 3%-6%.
- The US the dollar lost some ground, with investors reassessing the outlook for Fed’s monetary policy ahead of Thursday’s US CPI print.
- The ZAR benefiting as the South African Reserve Bank is widely expected to continue its tightening policy.
- The Dollar remained under pressure on Monday, even though US yields hit 4.22% for the 10Y.
- Global yields continue to rise as inflation remains stubbornly high.
- In Germany, the 10-year Bund yield, the European benchmark, rose to as high as 2.3%, closing in on its highest level since August 2011.
- US yields also approaching a 15-year peak of 4.3% hit in late October, as worries about inflation and aggressive Fed tightening spooked investors.
- The Federal Reserve delivered a widely expected 75 bps hike last week while flagging a longer monetary tightening path as the central bank seeks to bring down inflation to its 2% target.
- While recent data showed that the job market remains extremely tight, now, all eyes turn to October inflation data, due on Thursday, for more clues on future interest rate hikes.
- Traders continue to focus on Thursday’s US CPI and the outlook for US interest rates,
- US mid -term elections today.
- Both political parties fighting for control of congress.
- If the democrats lose, it would effectively end Biden’s political and economic agenda.
- And likewise if they win expect more aggressive fiscal spending.
Significant Market Data:
- 11h30: SA mining, Gold and Manufacturing data
- Mining expected at -4.3% YOY vs -5.9% previous
- Gold expected at -15.7% YOY vs -17.4% previous
- NB: contraction continues in SA’s industrial sector, as the industry suffers at the hands of ESKOM and loadshedding and Labour demands.
- 15h30 : US INFLATION – CPI EXPECTED 8% VS 8.2% PREVIOUS
- 15H30 : US CORE INFLATION – 6.5% EXPECTED VS 6.6% PREVIOUS
- The ZAR consolidating after a strong session on Monday.
- In early trading, the Dollar rebounding as US yields remain elevated with the 10Y at 4.22%
- The local unit opening at 17.76000, now testing above 17.8000 at the time of writing.
- Trading expected to be relatively subdued as US markets brace for the US MID TERM ELECTIONS.
- Also, focus likely to return to rising global yields as well as Thursday’s US CPI data.
- The longer term Yield trend remains in favour of the Dollar, and extreme ZAR gains should be used as opportunities for importers to exact cover.
- Local bond traders also citing demand for SA government debt.
- And the ZAR benefitting from Yield hunters as SA Bond yields traded lower , after foreigners snapped up debt with the SA 10Y GB yielding 10.50% vs US 10YT at 4.22%.
- Trade: Range trading : 17.5800-17.8800
- USDZAR : Expect a range 17.5800-17.8800
- Importers 17.6800-17.5800
- Exporters 17.7800-17.8800
- EURZAR : Expect a range of 17.6400-17.8700
- Importers 17.7300-17.6400
- Exporters 17.8000-17.8700
- GBPZAR : Expect a range of 20.2200-20.5200
- Importers 20.3200-20.2200
- Exporters 20.4200-20.5200
- USDZAR 17.7500
- EURZAR 17.7700
- GBPZAR 20.3900
- ESKOM said stage 2 will be implemented as soon as possible.
- Eskom says stage two power cuts will start from 9AM on Tuesday morning because of failing generating units at coal power plants. EWN
- A report by Eskom has warned about the impact of a delay on the multi-year project to extend Koeberg’s life by a further 20 years.
- Under the Grid Code, Eskom is required to file a medium-term system adequacy outlook annually.
- The objective of these reports, says the utility, is “to assess over a five-year period the electricity supply shortfall risks that may arise based on foreseeable trends in demand and generation capacity in South Africa”. MONEYWEB
- Concerns have been expressed about foreign companies – specifically Chinese firms – this week being awarded the lion’s share of four contracts valued at R17.4 billion that the SA National Roads Agency (Sanral) cancelled earlier this year.
- the SA Forum of Civil Engineering Contractors (Safcec) has also expressed concern that the principles of fairness and competitiveness were not met in awarding these contracts.
- However, construction industry associations and stakeholders have stressed the need for South Africa construction companies to be competitive against international rivals. MONEYWEB
- US stock futures held steady on Tuesday after the major averages notched a second winning day.
- Major news are investors cautiously awaiting the results of the US midterm elections.
- Futures contracts tied to the three major indexes all traded near breakeven.
- In regular trading on Monday, the Dow jumped 1.31%, the S&P 500 gained 0.96% and the Nasdaq Composite added 0.85%.
- Investors are now mulling whether Republicans could take back the US Congress and change the direction of future policy and spending.
- Markets are also looking ahead to Thursday’s inflation report that could signal how aggressively the Federal Reserve would raise interest rates in December. Bloomberg
- The US 10-year Treasury yield, the benchmark for borrowing costs worldwide, hit 4.2%, approaching a 15-year peak of 4.3% hit in late October, as worries about inflation and aggressive Fed tightening spooked investors.
- The FED delivered an expected 75 bps hike last week while flagging a longer monetary tightening path as the central bank seeks to bring down inflation to its 2% target.
- While recent data showed that the job market remains extremely tight, now, all eyes turn to October inflation data, due on Thursday, for more clues on future interest rate hikes
- The UK
- The yields on the 10-year Gilt traded as high as 3.63% as investors await British Finance Minister Jeremy Hunt’s autumn statement due next week.
- The Chancellor is expected to announce up to £60 billion of tax rises and spending cuts, including at least £35 billion pounds in cuts.
- Elsewhere, the continued monetary policy tightening by the Bank of England, alongside risks of economic recession, has also provided some support.
- New PM Rishi Sunak forced to reverse most of Lizz Truss’ mini-budget measures and
- Markets are now more stable, with government borrowing costs broadly back to where they were before the turmoil. Reuters
- The Dow added 423 to 32,827
- The SP500 gained 36 to 3,806
- The Nasdaq gained 89 to 10,475
- Asian markets rallied on the back of a strong close on Wall Street as traders pair bets that the Fed will continue to be so aggressive.
- In Japan, the Nikkei 225 jumped 1.25% to 27,872, closing at their highest levels in almost eight weeks, with technology stocks leading the charge.
- Japanese shares also tracked a strong finish on Wall Street overnight as investors awaited the results of the US midterm elections and the October inflation reading.
- Moreover, investors remained optimistic about the corporate outlook as the third quarter earnings season has largely been positive.
- In China, the Shanghai fell 0.4% to around 3,065 consolidating recent gains as investors continued to watch for policy signals from China on whether it is considering dialling back its zero-Covid policy.
- Speculation about a potential reopening that started last week spurred a rally in Chinese stocks.
- BUT health officials dispelled those rumours over the weekend and reaffirmed their commitment to current Covid controls.
- Meanwhile, investors are also looking ahead to the results of the US midterm elections that could affect Sino-US relationship.
- The US Dollar declined below 111 to trade at 110.45 in early Tuesday trading.
- The Buck lower for two straight sessions, as investors looked ahead to the US midterm elections that could sway future economic policy.
- Markets also await key US inflation data later this week that could influence the size of the Federal Reserve’s rate hike in December.
- The dollar held recent declines against other major currencies including the Euro, Sterling and, Aussie.
- Focus however remains on Thursday’s key CPI report as well as rising yields with the 10Y at 4.22%
- Crude oil near $98/bl as traders weighed supply concerns against a weakening demand outlook.
- Brent, the international oil benchmark climbed in recent weeks on a tightening supply outlook.
- This after OPEC+ slashed output by 2 million barrels a day in November,
- also while the European Union ban on Russian oil is set to take effect in December and will be followed by a halt on oil product imports in February.
- Meanwhile, oil prices retreated from a recent high on Monday as China reaffirmed its commitment to the zero-Covid policy that has dampened demand in the world’s top crude importer.
- Markets also continued to grapple with tightening financial conditions and mounting risks of a global recession
- Gold gained to $1,670/oz on Tuesday, as investors avoided making big bets ahead of US inflation data that could influence the size of the US Federal Reserve’s rate hike in December.
- Markets are currently priced for a more moderate 50 bps increase next month, but a hotter-than-anticipated US CPI report on Thursday could fuel bets for another supersized 75 basis point rate hike.
- While gold is widely considered as a hedge against inflation and economic uncertainties, higher interest rates raise the opportunity cost of holding non-yielding bullion, denting its appeal.
- Investors also continued to watch for policy signals from China on whether it is considering dialling back its zero-Covid policy. China is the world’s second largest market for gold jewellery next to India