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Morning NOTE

18 May 2022


The ZAR strengthened to 15.8800 on a recovery in Risk assets.


  • The Rand benefitted from a risk rally as global stock markets all recouped some of the major losses experienced over the last few weeks.
    • In addition, US Retail sales disappointed to the low side, indicating the rising prices are having an effect on the US economy and could affect GDP.
    • Traders speculating that the Fed might slow down in their hiking cycle to protect the economy.
  • BUT…
    • Powell in a speech last night confirmed the FED’s commitment to bringing inflation under control, that remains at 40 year highs.
    • Analysts speculating this could imply a hiking cycle that takes the Fed funds rate above neutral.
  • The rise in oil prices, as US WTI traded to $115/bl, due to supply concerns remains a key driver.
  • This morning, signs that inflation on a global scale, continues to bite, with the UK announcing 9% CPI, the highest since 1980.
    • Central banks all leaning to rates higher than neutral to fight price increases, exacerbated by the WAR.

On the data front:

  • 10h00:  SA CPI YOY came out as expected at 5.9% vs previous 5.9%
  • 10h00:  SA CORE CPI YOY came out at 3.9% vs previous 3.8%
    • NB: The previous print, was the 11th consecutive month of price increases and CPI remains higher than the mid point of the SARB’s range.
  • The MPC of the Reserve Bank meets tomorrow.
    • With +50 bps expected.
  • Expect some profit taking early on with a weaker ZAR.
    • The move expected after the ZAR recovered 2.70% in the previous 2 sessions.
    • An eye also on today’s CPI data, ahead of tomorrow’s SARB meeting.
    • A high print likely to support a hawkish SARB and be ZAR supportive.
  • NB: The longer term technical picture remain in favour of a Dollar Bull run as long as the FED hikes rates.
  •  EURZAR :  Expect a range of 16.6300-16.9200

    • Importers 16.7300-16.6300
    • Exporters 16.8500-16.9200
  •  GBPZAR :  Expect a range of 19.7300-20.0100

    • Importers 19.8200-19.7300
    • Exporters 19.9200-20.0100


  • USDZAR 15.9200
  • EURZAR 16.7600
  • GBPZAR 19.8600


  • SA awaits inflation data today.
    • Last month, The annual inflation rate in South Africa rose to 5.9% in March of 2022, marking the 11th consecutive month in which annual inflation has been higher than the midpoint of the SARB’s target range of between 3% and 6%.
      • Main upward pressure came from prices of transportation, food & non-alcoholic beverages, housing & utilities.
      • The annual core inflation, which excludes prices of food, non-alcoholic beverages, fuel and energy, quickened to 3.8% in March, the highest since February 2020, from 3.5% in the prior month.
      • On a monthly basis, consumer prices inched up by 1%, faster than a 0.6% rise in February,
  • The health department reported an additional 5,096 new cases and 41 deaths. News of more infections are becoming more common as SA enters the winter/flu season.
    • In addition, President Cyril Ramaphosa addressed the second Global COVID-19 Summit on 12 May 2022.
    • CR announced that South Africa has contributed $10 million to encourage local production of vaccines. EWN



  • US stocks closed sharply higher on Tuesday, attempting to recover from losses in the previous sessions.
    • The Dow Jones jumped 1.3% to 32655, the S&P 500 finished 2% higher at 4089 and the Nasdaq gained 2.8% to 11985.
    • Investors digested comments from Fed Chair on tight monetary policy as the central bank chief reinforced the Fed will keep raising rates until inflation comes down.
  • A slew of upbeat earnings results and strong retail sales and industrial production data which showed the economy remained strong in April also boosted investors’ mood.
  • On the corporate front, Citigroup added 7.5% following a report that Warren Buffett’s Berkshire Hathaway has made a big bet on the bank.
    • On the flip side, Walmart plunged 11.4% after the retail giant missed Wall Street expectations.
  • The yield on the US 10-year yield moved higher towards 3%.
  • Traders reassessed the outlook of tightening monetary policy.
  • The Fed raised interest rates by a half point early this month and Chair Powell said two similar moves were on the table in June and July. source: U.S. Department of the Treasury

The Fed Will Not Hesitate to Raise Rates

  • Chair Powell in an interview with the Wall Street Journal, said  “… The Federal Reserve will not hesitate to keep raising interest rates until inflation falls in a clear and convincing way…”
  • This even if that involves moving past broadly understood levels of neutral.
  • In addition, Powell added that the US economy is strong and well positioned to withstand less accommodative and tighter monetary policy.
  • The Dow  gained 431 to 32,654
  • The SP500 gained 80 to 4,088
  • The Nasdaq  gained 321 to 11,984
Futures Trading:
  • image : Trading economics
  • Asian markets all higher after the relief rally on Wallstreet.
    • In Japan, the Nikkei 225 rose 0.94% to close at 26,91, extending gains in the previous session, after data showed Japan’s economy contracted less than expected in Q1.
      • Japan’s economy shrank for the first time in two quarters as Covid-19 curbs hit the service sector.
      • Technology stocks led the advance following strong overnight gains on Wall Street.
    • In Australia, the ASX 200 Index gained 1% to close at 7,183, rising for the 4th session, and helped by mining and technology stocks.
      • Higher commodity prices lifted Australian miners and Technology stocks also tracked overnight gains on Wall Street,
      • Traders also watched for market reaction to comments from Federal Reserve Chair Jerome Powell on the US central bank’s resolve to raise interest rates until inflation abates.
      • Wednesday’s moves also came a day after minutes of the Reserve Bank of Australia’s May meeting hinted at larger, 40-basis point rate hikes at upcoming meetings, if needed. TE
  • US crude oil fell more than 1.5% to below $113 a barrel on Tuesday, easing from their daily highs of $115.5.
    • News that Venezuela could supply more oil to the market, helped to push prices lower, after negotiations between the US and Venezuela.
    • Early in the session, oil prices were higher as investors await developments around a proposed EU ban on Russian oil, which would tighten global supply further.
      • On Monday, EU foreign ministers failed to convince Hungary to lift its veto on the oil embargo on Russia and some diplomats see a May 30-31 summit as the moment for an agreement.
      • However, fuel demand likely to increase Shanghai set out plans to end a Covid-19 lockdowns at the beginning of June. Energy News
  • Gold reversed its daily gains to trade at $1810/oz. The Yellow metal under pressure after Jerome Powell reaffirmed the Fed’s commitment to bring down multi-decade high inflation.
    • In a speech, Powell said monetary policy tightening could become more aggressive if inflation doesn’t come down.
    • “What we need to see is clear and convincing evidence that inflation pressures are abating and inflation is coming down.
      • And if we don’t see that, then we’ll have to consider moving more aggressively.
      • If we do see that, then we can consider moving to a slower pace,”
      • Bullion traditionally under performs in Fed hiking cycles as the metal pays Zero interest. Kitco
  • The US dollar traded lower to reach 103.20 a week at 103.2 as the recent relief rally across equities and signs of progress in China’s effort to bring Coronavirus outbreaks under control dented investors’ appetite for the safe-haven currency.
    • The most pronounced selling activity was against the Euro and the Pound.
    • Traders are boosting bets for quicker ECB rate hikes after Dutch central bank governor Knot said the 50bps rate hike in July should not be ruled out.
    • In addition, the UK  pound strengthened more than 1% after data showed the UK jobless rate fell unexpectedly to its lowest since 1974 in Q1 and inflation remains at the highest level since 1980. FX news
Ukraine- Russia
  • Finland and Sweden formally applied to join NATO on Wednesday marking another step toward the Western military alliance’s expansion.
  • However, the full accession process could take a year and Turkey’s objections need to be overcome and all 30 nations need to vote in favour.
  • The Russian army has lost 27,900 soldiers since its invasion of Ukraine on Feb. 24, the Ukrainian Defense Ministry said in a video on Telegram, NBC News reported.
COVID-19 SOURCE Cases / Deaths / Recoveries
  • World 524,240,871 / 6,292,747 / 494,162,020
  • USA 84,473,447 / 1,027,285 / 81,380,775
  • SA 3,899,841 / 100,812 / 3,720,427
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