The ZAR weakened on the back of a rampant Dollar as Fed rate hikes and a potential global recession caused panic amongst investors.
- The Rand declined to 17.1800 on the back of a surging Dollar as the Dollar (DXY) surged to 20 year highs in anticipation of a 75 bps hike at the next FOMC meeting.
- Markets reacted to news that noted dove, Bostic backed a 75 bps hike. The news added to the Dollar bull run.
- Commodity currencies particularly hard hit, as the Australian, New Zealand and Canadian dollars as well as the South African Rand took a beating.
- Commodity prices all lower on the back of fears of a global recession as well as a new variant in China.
- Locally, Eskom blackouts continue to drag down sentiment, even after a surprising ratings upgrade from S&P.
- However, the key item for the week remains US inflation, with another high print of 8.8% expected vs 8.6% previous.
- A high print, would likely support the Fed’s view, likewise a lower print could reverse a large portion of FX losses.
On the data front we have ;
- Today :
- 13h00 : SA manufacturing data with expected -1.6% vs -7.8 previous YOY (** optimism on the back of the lifting of covid-19 restrictions)
- And +1% MOM vs -5.8% previous.
- 13h00 : SA retail sales , with +1.3% expected vs +3.4%previous YOY (**here we see a slowdown in consumer spending to fuel prices).
- 14h30 : US INFLATION (CPI) expected 8.8% vs 8.6% YOY previous
- 14h30 : US CORE INFLATION (CPI) expected 5.8% vs 6% YOY previous
- 11h30 : SA mining(expected -18% YOY) and Gold production (expected -30% YOY) . strikes continue to hamper the industry.
- Movement Today :
- This morning we opening weaker at levels not seen since Covid-19, as the Dollar continues to steam ahead.
- With a weaker Bias near the topside of the USDZAR range.
- However, the focus remains on tomorrow’s inflation data, with CPI expected at 8.8%.
- NB: We continue to advise exporters to hedge forward, as forward points and FX options also in their favour.
- Importers , can hold off as we do expect a retracement in ZAR weakness.
- USDZAR : Expect a range 16.9500-17.3300
- Importers 17.0300-16.9500
- Exporters 17.1700-17.3300
- EURZAR : Expect a range of 16.9400-17.3700
- Importers 17.0900-16.9400
- Exporters 17.2250-17.3700
- GBPZAR : Expect a range of 20.1500-20.4700
- Importers 20.2400-20.1500
- Exporters 20.4700-20.3800
- USDZAR 17.1300
- EURZAR 17.1400
- GBPZAR 20.2900
- 1 year on, SA looks back at the July unrest of 2021.
- Some South Africans have expressed doubt on whether the country has the security capacity to protect the nation if another unrest were to erupt.
- Exactly one year ago, the looting spree hit Gauteng, starting on the East Rand those violent acts resulted in the deaths of over 300 people.
- Citizens have questioned South Africa’s security capabilities and others have questioned what government’s plan is to stop the demonstrations by truck and taxi drivers from blowing up.
- …following the protests in Mbombela last week over the rising cost of living and fuel prices.
- ESKOM :
- Discovery insure said that Power surge claims are up 50% in the last six months.
- SA insurance companies are starting to talk about far higher anniversary renewals, or providing the same cover for an additional premium, due to power surges caused by Eskom.
- SA’s labour minister said he’ll oppose any move to privatise the beleaguered power utility Eskom, as it struggles to generate power, avoid outages and repay $23 billion of debt.
- The administration is in the process of breaking up Eskom into three separate entities — power-transmission, generation and distribution.
- Currently Eskom has debt of R396 billion. Moneyweb
- This after S&P associate director of sovereign ratings in the Middle East and Africa,
- …said in an interview the ones that have done better are the ones that have done some kind of a wholesale privatisation,”
- …“Then the problem at least is no longer the government’s and typically the utilities run better.”
- In a fight to survive the next election, the ANC wants to create 2 million jobs before 2024.
- SA Labour Minister Thulas Nxesi said 2 million new jobs is needed before the next elections as the nation grapples with one of the highest unemployment rates in the world.
- About 12 million South Africans are without jobs.
- Unemployment according to the expanded definition, which includes people who were available for work but not looking for a job, is at 45.5%
- It is the highest rate on a list of 82 countries monitored by Bloomberg. Bloomberg
- The main US stock indices declined on Monday, with investors treading carefully as fresh economic data and corporate earnings reports to be released this week will shed light on current recession risks.
- The Dow Jones lost over 160 points, while the S&P 500 and the Nasdaq fell 1.1% and 2.2%, respectively.
- Sentiment remained clouded by bets that the FOMC will continue to hike interest rates aggressively.
- On the corporate front, Twitter shares slumped over 11% after Tesla CEO Elon Musk said he cancelled his takeover deal because the social media company violated several merger agreement provisions.
- The rest of the tech sector followed, with Alphabet and Amazon both losing 3%.
- The yield on the 10-year US bond fell to below the 3% mark as investors continued to assess recession risks against the outlook of interest rate hikes by the Federal Reserve.
- Risk sentiment was muted to start the second week of July, as a batch of economic data, including June consumer prices, will give further information on the extent of the Fed’s aggressiveness in its next decision.
- Several policymakers, including Chair Jerome Powell, already backed a 75bps rate hike in the central bank’s next meeting while saying that monetary policy needs to be more restrictive to tame inflation, even if it hampers growth.
- In the meantime, the yield for 2-year instrument was at nearly 3.1%, remaining above its 10-year counterpart for the fourth straight session and reflecting higher perceived risk for the short-term.
- The Dow declined 164 to 31,173
- The SP500 declined 44 to 3,854
- The Nasdaq fell 262 to 11,372
- image : Trading economics