The ZAR strengthened dramatically after US CPI data printed lower than expected, resulting in a global risk asset rally.
- The Rand gained more than 3% to reach 16.1100 on Wednesday after latest US Inflation data pointed to a slowdown in rising consumer prices.
- The US CPI printed at +8.5% which was lower than the expected 8.7% and the 9.1% previous.
- The recent drop in energy prices on the back of demand worries the major contributor.
- A slowdown in general economic activity and subdued commodity prices likely to indicate further slowdowns.
- US yields dropped sharply with the 10YT trading as low as 2.68% (was at 2.80% before the data release).
- The dollar suffering on the back of declining yields as both the G7 and EMFX complex benefitted from the Greenback’s slide.
- EURUSD touched 1.0370
- Cable ( GBPUSD) reached 1.2270
- & USDZAR 16.1100
- The USD index (DXY) trading at 105 after sliding 1% to 104.63
- The rebound after Fed governor Daly warned it’s too early to claim victory over inflation.
- Markets reducing their pricing probability for a 75 bps FED hike from 90% to 33% .
Significant data this week;
After yesterday’s excitement, we now await SA mining data.
(NB: the sector continues to provide valuable Export dollars and any signs of recovery will be ZAR supportive).
- 13H00 : SA MANUFACTURING PRODUCTION FOR JUNE YOY -2.9% EXPECTED VS -2.3% PREVIOUS
- 11H30 : SA MINING PRODUCTION FOR JUNE YOY EXPECTED -5% VS -7.8% PREVIOUS (MOM +1.2% EXPECTED)
- 11H30 : SA GOLD PRODUCTION FOR JUNE YOY EXPECTED -26.5% VS -28.3% PREVIOUS
- 08H30 : UK GDP GROWTH RATE : EXPECTED +2.8% VS 8.7% PREVIOUS
- Expect a stronger ZAR as risk markets continue to rally following yesterday’s US CPI data.
- Early on, we expect some profit taking in the ZAR, resulting early weakness,
- …but the inflation data is hard to ignore and we expect Rand strength going forward.
- In addition, traders will keep an eye on today’s SA mining and manufacturing data, but US rates remains the driver of market movements.
- Late last Fed speakers tried to place a hawkish tone on the market, resulting in some Dollar buying, but this was reversed in early European trading.
- Exporters are advised to cover on any ZAR weakness.
- We expect the Risk rally to continue.
- USDZAR : Expect a range 16.0900-16.3800
- Importers 16.1600-16.0900
- Exporters 16.3000-16.3800
- EURZAR : Expect a range of 16.5300-16.8000
- Importers 16.6500-16.5300
- Exporters 16.7300-16.8000
- GBPZAR : Expect a range of 19.6400-16.9700
- Importers 19.7300-19.6400
- Exporters 19.8500-19.9700
- USDZAR 16.2200
- EURZAR 16.6900
- GBPZAR 19.7900
- The Constitutional Court dismissed Ace Magashule last legal bid to get his suspension as the party’s secretary-general overturned.
- The court explaining that there is no reasonable prospect for success.
- Magashule wanted his suspension declared unlawful invalid and unconstitutional.
- If successful like Mkhize they were seen as potential candidates to usurp Ramaphosa at the year end ANC congress. EWN
- Sasol has announced a 96% increase in the price of piped gas, to R133,34 per gigajoule (GJ).
- Industrial gas users say this poses a huge risk to the economy.
- The price hike would cost South Africa R325 million per month as of 1 August 2022, warned industry body the Industrial Gas Users Association of Southern Africa (Igua-SA).
- In conversation with Bruce Whitfield, Igua-SA CEO Jaco Human accuses Sasol of price gouging. Moneyweb
- Johann Rupert, the chairman of Richemont won’t give in to activist shareholder Bluebell Capital Partners’ campaign to overhaul the boardroom structure at the world’s second biggest luxury group.
- Rupert, who owns all the non-listed category B shares in the company, which represent 9.1% of the capital, but 50% of the voting rights,
- ….said there was no reason to change the board “either legally or morally.”
- Zimbabwe’s Minister of Foreign Affairs and International Trade, Frederick Shava, has called on Zimbabweans based in South Africa to respect the host nation’s laws and shun crime.
- He added Zimbabwe remains ready to welcome back its citizens after the expiration of the Zimbabwe Exemption permit. IOL
- In regular trading on Wednesday, the Dow gained 1.6%, the S&P 500 jumped 2.1% and the Nasdaq Composite surged 2.9%.
- Leaving all three benchmarks closing at their highest in over three months.
- The moves on the back of the softer headline inflation number that came in at 8.5% in July.
- CPI decelerating from an over 40-year high of 9.1% in June, prompting speculations for peak inflation and a less aggressive Fed.
- US stock futures climbed higher on Thursday after the major averages rallied sharply in the last regular session.
- Futures contracts tied to the three major indexes each rose about 0.2%.
- In after-hours trading, Disney jumped nearly 7% on strong earnings and higher-than-expected Disney+ subscription numbers.
- The yield on the US 10-year note declined sharply to the 2.7% level.
- The yield approaching the four-month low of 2.5% hit earlier in the month on the back of lower than expected inflation figures.
- The data eased worries that the Fed will extend its aggressive tightening pace.
- Consumer prices in the US rose 8.5% annually in July, lower than expectations of 8.7% and previous of 9.1%.
- It was quite a snap back after backtracking hawkish bets after last week’s hot payroll data.
- Hopes that the rise in consumer prices have peeked drove investors to reconsider the Fed’s dovish policy pivot.
- The Dow added 476 to 33,309
- The SP500 added 70 to 4,210
- The Nasdaq added 360 to 12,854
- image : Trading economics
- Asian markets broadly higher across the region on the back of lower US inflation data, markets however pairing gains after hawkish comments from FED governors.
- In Australia, the S&P/ASX 200 Index jumped 0.8% to above 7,030, hitting its highest levels in over two months.
- Nearly all sectors participating in the rally following overnight gains on Wall Street on the back of softer-than-expected US inflation data.
- The data raising hopes for a less aggressive Federal Reserve. High-growth technology and clean energy-related names led the advance.
- Other index heavyweights also gained, including BHP Group (1.8%), Telstra (0.6%) and ANZ Bank (0.9%).
- In China, the Shanghai Composite rose 0.3% to around 3,240, recouping some losses from the previous session.
- Traders also citing the better-than-expected US inflation report and speculations for a less aggressive Federal Reserve and spurred a broad rally in risk assets.
- Crude oil WTI crude declined to $91/bl after official data showed that US crude inventories rose much more than expected.
- Demand concerns continues to pressure prices.
- EIA data showed that US crude stockpiles expanded by 5.5 million barrels last week, much higher than the 73,000-barrel increase expected by analysts.
- Flows on the Russia-to-Europe Druzhba pipeline also resumed earlier this week as a payment dispute was resolved, easing supply concerns further.
- Oil prices are still up about 3% so far this week, but remain near six-month lows after having erased all the gains seen since Russia invaded Ukraine.
- Gold prices rallied above $1,790/oz after the softer US CPI data.
- The yellow metal however retreating as traders booked profits following hawkish remarks from Federal Reserve policymakers.
- The metal jumped initially on before reversing towards the close after Fed officials signalled resolve in raising interest rates aggressively to convincingly tame inflation.
- Although gold is widely considered as a hedge against inflation and economic uncertainty, higher interest rates raise the opportunity cost of holding non-yielding bullion.
- The US Dollar recovered toward 105.5 on Thursday after sliding 1% in the previous session.
- The slide on the back of weaker US CPI but traders assessed hawkish remarks from Federal Reserve policymakers, resulting in a dollar bounce.
- In the latest developments, San Francisco Fed President Mary Daly warned in an FT interview that it is too early to “declare victory” in the fight against inflation.
- She added that consumer prices remain “far too high and not near our price stability goal.”
- Those remarks came as the headline inflation rate slowed to 8.5% in July 2022 from an over 40-year high of 9.1% in June amid a significant drop in gasoline prices.
- The Euro jumped to $1.0370, a level not seen in a month.
- The rally supported by a slightly weaker dollar after US inflation rate came below forecasts in July, easing expectations of an aggressive Fed rate hike next month.
- Bets on rate hikes from the ECB for the end of the year were also lowered but the ECB is still seen raising borrowing costs by another 50bps in September.
- Despite the gains, the common currency holds close to parity.
- ~ concerns of a looming economic crisis in Europe persist as inflation shows no signs of peaking and the energy crisis is far from over.