View this email in your browser

Morning NOTE

18 August 2022


The ZAR weakened in the face of a rampant Dollar after the FOMC minutes confirmed the FED’s hawkish stance.



  • The Rand lost ground to the Dollar as well as other G7 currencies as investors exited the EMFX in favour of “safer” havens.

  • The FED minutes confirmed discussion during the previous FOMC where board members remained steadfast in their commitment to bring inflation down to 2%.
    • Once caveat for “doves”, were the addition of the discussion that future rate decisions would be data dependent.
      • Earlier in the week we had a host of weaker than expected economic data that could still support a 50 bps hike in September.
  • On local front and not helping the ZAR were disappointing SA retail sales data.
    • It confirmed the effects of high inflation, Fuel costs and interest rate hikes, currently engulfing SA consumers.
    • This is the steepest decline in retail activity since January 2021.
    • STATS SA reporting, Retail sales much lower than expected at -2.5% vs an expected a rise of 0.4%.
  • Supporting the view is a job market that remains tight, with July payrolls surprising to the upside.
    • The benchmark 10YT did not really react to minutes and drifted below the 2.90%.
      • In addition, FOMC members showed general consensus that the current 2.25%-2.5% target of funds rate is around the neutral level.
      • It however implied more hikes are needed to move to the restrictive territory and to have an effect on CPI.
      • Markets are currently priced for a 50 bps hike in September, however a 75 basis point increase remains on the cards as inflation is still running sky high.

Significant data this week;

  • Minor data releases today:

    • 13H00 : SA building permits EXPECTED -5.7 % VS -7.1% PREVIOUS
      • ** another contraction expected as higher interest rates hammer the sector.
    • 14H30 : US INITIAL Weekly jobless claims EXPECTED +265K VS +262K PREVIOUS


  • We expect a weaker ZAR today on the back of weaker Risk asset markets across the globe.
    • Following Wallstreet’s negative close, Asian market followed and stock futures all in the red as we approach the European open.
    • Also not helping the case for risk assets were UK CPI (10.1%) & PPI (22.2%), that would likely force the BOE to continue on its aggressive path.
  • The minutes the major contributing factor in latest moves.
    • The local unit losing 3.4% (at the time of writing this week alone).
    • Local traders citing panic buying as stop losses are triggered with 16.9600 once again a possibility.
  • USDZAR now in a “buy on the dip” phase .

Expected Ranges

  • USDZAR :  Expect a range 16.6100-16.8800
    • Importers 16.6800-16.6100
    • Exporters 16.7800-16.8800
  • EURZAR :  Expect a range of 16.8100-17.2200
    • Importers 16.9100-16.8100
    • Exporters 17.0500-17.1700
  • GBPZAR :  Expect a range of 20.0200-20.2000
    • Importers 20.0800-20.0200
    • Exporters 20.1300-20.2000


  • USDZAR 16.6800
  • EURZAR 16.9800
  • GBPZAR 20.0800


  • Phala-Phala-gate.
    • In a rare show of solidarity, several political parties held a joint media briefing on Wednesday.
    • The DA, IFP, ACDP COPE and PAC, all in a bid to table a motion of no confidence in the National Assembly.
    • Opposition parties also saying they will use the courts and parliamentary processes to hold President Cyril Ramaphosa and his administration accountable.
      • …. over the alleged cover-up of the burglary at his Phala Phala farm.
    • In addition, members of the Standing Committee on Finance want the SARB to give it an update on whether any exchange control measures were violated by President Cyril Ramaphosa. EWN
  • The mayor of the City of Tshwane, Randall Williams, denied allegations of corruption and impropriety relating to a pending power contract.
    • Williams is accused of “bullying” opposition leaders into endorsing an unsolicited tender.
    • Williams wants to lease land on which the city’s power stations are located.
    • On Wednesday, Williams dismissed the allegations as misleading information and a political smear campaign by opposition parties. NEWS 24
  • Failing a SARB FICA investigation, Nedbank was fined R35million by the SA Reserve bank of which R15million remains suspended.
    • It follows an investigation into the bank’s procedures for money laundering and terrorist financing.
    • While not guilty of any of the above, the bank failed to show it had the ability to prevent such incidents.
    • In a statement, Nedbank said it paid the financial penalty of R20 million [R15 million was suspended] and acknowledged the administrative and reporting shortcomings present in 2019 which have all since been remediated.
    • The bank added “…the compliance inspection was done more than three years ago, and while we were disappointed with this outcome, given the effort and investment we have made in compliance over many years, it was not a surprise to us, and management and the Nedbank board have been continually updated on this matter since the inspection in 2019. Moneyweb
  • The South African Weather Services (SAWS) has issued a warning of very cold and wet weather over the Western and Northern Cape areas.
    • To compound matters, Eskom then warned it will be implementing stage 2 loadshedding as it once again battles to generate sufficient power. IOL


  • Equity markets lower across the world, after the release of the July FOMC minutes put a SELL on risk assets.
  • In regular trading on Wednesday, the Dow fell 0.5%, the S&P 500 lost 0.7% and the Nasdaq dropped 1.25%.
    • In Asian trading, we also have US stock futures lower after all three major averages ended lower in the last regular session.
    • Traders placing the blame squarely at the feet of a hawkish Fed.


  • The US 10YT declined  below the 2.9%.
    • Traders citing the Fed minutes from the July meeting, not giving specific guidance for future rate hikes.
    • The Fed instead saying it will continue make data-dependent decisions, as it tries to combat 40year high inflation. Source : US treasury
    • This after the annual inflation rate in the UK accelerated to 10.1% in July from 9.4% in June.
    • It was the highest since 1982 and above expectations of 9.8% due to soaring energy and food prices.
    • Traders now betting the Bank of England will continue its aggressive tightening and deliver a back-to-back 50 bps increases rates.
    •  This would bring rates to its highest level since 2008.
    • The BOE sees inflation peaking at 13.3% in October and projects the country to enter a recession in Q4 and lasting for five quarters.


  • The Dow declined 171 to 33,980
  • The SP500 fell 31 to 4,274
  • The Nasdaq was lower by 164 to 12,938

Futures Trading:

  • image : Trading economics


  • Asian markets lower across the region following the release of the US FOMC minutes from the July meeting.
    • In Japan, the Nikkei 225 fell 0.96% to 28,942 and in turn retreating from 7-month highs after it tracked overnight losses on Wall Street.
      • Traders citing news that the FED is ready for more rate hikes down the line as it continues to battle 40yr high inflation.
    • In Australia, the ASX 200 dropped 0.21% to close at 7,113. Traders citing Wallstreet woes as well as a strong labour market.
      • Recent data indicated Australia’s jobless rate fell to a fresh 48-year low of 3.4% in July and this likely supportive of another 50 bps point rate hike from the RBA in September.
      • Technology stocks led the decline, with sharp losses from Xero Ltd (-7.1%), Block Inc (-6%) and Seek Ltd (-2.4%).  Reuters
  • Crude oil prices for West Texas Intermediate (WTI), for delivery at Cushing Oklahoma, remained under pressure.
    • With Crude now flat-lining around the $88/level.
    • Demand concerns remain with traders fearful of a global economic slowdown. The US oil benchmark remains nearly 5% down this week as recession fears continued to grip commodity markets.
    • On the supply side, Russia has started to gradually increase oil production amid easing sanctions-related curbs and increased purchases from Asian buyers.
    • Traders also continued to monitor efforts to revive the 2015 nuclear deal which could boost Iranian oil exports by about 2.5 million bpd. Reuters
  • Gold prices remain under pressure and now well short of the $1800/oz level.
    • The yellow metal printing $1,760/oz  as traders digested the latest FOMC minutes.
    • The Fed indicated the need to keep raising interest rates to lower inflation, but did not provide specific guidance for future increases.
    • US policymakers noted that future rate decisions would be based on incoming economic data, as well as assessments of how the economy was adapting to rising interest rates.
    • In addition, analysts for Credit Suisse joined Goldman Sachs in slashing price targets for gold, citing pressure from rising real rates and the Fed’s resolve in bringing down inflation. Kitco metals
  • The US dollar rallied on the back of the FED minutes and rising US treasury yields.
    • The Buck reaching 106.5 and in turn near its highest levels in three week.
    • The minutes indicating the FED’s commitment to raise interest rates into restrictive territory to bring inflation substantially lower.
    • Markets are currently priced for a half-percentage point rate hike in September, with some speculations for a bigger 75 basis point increase. Fx news

Copyright ©
2022 RussellStone Treasury
All rights reserved.

Our mailing address is:

Want to change how you receive these emails?
You can update your preferences or unsubscribe from this list.