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Morning NOTE

21 July 2022


The ZAR weakened after a poor CPI data release  ahead of today’s SARB MPC meeting.


The Rand weakened after SA CPI printed higher than expected, ahead of today’s SARB MPC meeting.

  • Bond traders selling SA government bonds due to the high CPI print ahead of today’s rate meeting.
  • Yesterday, the Inflation Rate in South Africa increased to 7.4% in June from 6.5% in May of 2022, this is also higher than the expected number of 7.2%.
  • The JSE reporting foreigners were net sellers of R1.2bn bonds.
    • Recall :  the inverse relationship between bond price and yields.
    • i.e. a rise in interest rates (yields) results in a fall in bond prices.
    • At the time of writing, The yield on the SA 10-year bond was just below 11%, not far from a 2-year high of 11.1% hit on July 19th.
      • Investors weighed prospects of an at least 50 bps-rate hike at today’s monetary policy decision after domestic inflation hit a fresh 13-year high of 7.4% in June.
      • Clearly SA bonds continues to offer a large yield pickup VS US 10YT’s at 3.00%.
  • In addition, foreign institutional investors, who buy SA bonds for the large yield/carry pickup, will use the more liquid FX market to hedge any negative exposures.
    • Resulting in USD buying.
  • The MPC is widely expected to hike rates by 50 bps, although some have pointed to the possibility of 75 bps.
  • On the Data front:
    • 14H15 : ECB rates decision. Expected +0.25% vs 0 previous. (talk of 50 bps also making rounds).
    • 15h00 : SA Reserve bank interest Rate decision. Expected + 50 bps (repo to 5.25%) and prime to 8.25%.
  • Today :
    • This morning we opening weaker as the ZAR continues to ignore the Risk rally ahead of the MPC meeting.
    • Expect some early session weakness ahead of the SARB’s MPC rate decision at 15h00 – 15h30.
    • Thereafter if the SARB does not surprise markets, we will look for some ZAR gains as Dollar longs (bond hedges), will likely liquidate their positions.
      • The Euro, Pound and Canadian dollars gainers as well as EMFX, like the Mexican Peso.
      • The Dollar, broadly, giving back gains, as other central banks catch up in monetary policy actions.
    • We remain range bound as 17.3000 – 16.8600 remains the threshold,
      • and we once again opening inside the range i.e. (17.1300).
  • USDZAR :  Expect a range 17.000-17.2300
    • Importers 17.0700-17.000
    • Exporters 17.1600-17.2300
  • EURZAR :  Expect a range of 17.3100-17.6600
    • Importers 17.4000-17.3100
    • Exporters 17.5900-17.6600
  • GBPZAR :  Expect a range of 20.3600-20.6900
    • Importers 20.45000-20.4000
    • Exporters 20.6200-20.6900


  • USDZAR 17.1300
  • EURZAR 17.5100
  • GBPZAR 20.54000


  • All focus on the SARB today.
    • Economists debating, a Repo rate hike: 75bps or 50bps?
    • A three-quarter percentage point hike to 5.5% will mean the sharpest increase since 2002.
    • With SA CPI coming in at 7.4% for June – 1.4 percentage points above the top end of the SARB’s target (6%),  and hitting a 13-year high.
      • Some feel the central bank may have no option but to hike the repo rate by 75 basis points (bps) on Thursday.
    • This would be the sharpest hike in almost two decades.
    • The last time the SARB  hiked by 75bps was in September 2002. Moneyweb
  • President Cyril Ramaphosa is facing renewed pressure to take action against underperforming ministers in his Cabinet.
    • The country is currently facing many challenges including corruption, looting and the devastating electricity crisis, which is costing the country billions of Rands.
    • CR’s refusal to act, has critics saying, he is delaying action as it’s an ANC elective year and that it would make him vulnerable. EWN


  • In regular trading on Wednesday, the tech-heavy Nasdaq Composite rallied 1.58%, the S&P 500 gained 0.59% and the Dow added 0.15%.
    • All three major averages hit their highest levels in more than a month as extreme negative sentiment paved the way for bulls to step in this month and scoop up beaten down names.
    • Also, Tesla rose 1.5% in choppy trade after the EV maker reported stronger-than-expected earnings but shrinking automotive gross margins.
    • Alcoa and CSX also jumped 6.1% and 3.4%, respectively, on an earnings beat
  • This morning, US stock futures eased on Thursday after a technology-led rally in the previous session, while investors continued to digest more corporate earnings results.
    • Dow and S&P 500 futures each fell about 0.2%, while Nasdaq 100 futures lost 0.3%.


  • The yield on the 10-year edged up above 3%, as investors continued to weigh the outlook of tighter monetary policy.
    • Last Friday, Fed Governors Bostic, Waller as well and St Louis Fed Governor James Bullard said they favoured a 75 bps interest rate increase, rather than the 100 bps move.
  • At the same time, recent economic data showed the economy remains robust, despite strong inflation and rising interest rates.
  • Fed policymakers enter a “blackout” period this week before the FOMC meeting on July 26th and 27th. Focus this week will be on corporate earnings and housing market indicators.


  • The Dow gained 47 points to 31,874
  • The SP500 gained 23 points to 3,959
  • The Nasdaq  gained 184 to 11,897

Futures Trading:

  • image : Trading economics


  • Asian markets tracking higher this morning after another positive session on Wallstreet
    • In Japan, the  gained 0.36% to close at 27,780 and in turned closed at its highest levels in over a month.
      • The Bank of Japan maintained ultra-low interest rates and signalled its commitment to keep policies accommodative despite a global shift toward tighter monetary settings.
      • Japanese shares also tracked overnight gains on Wall Street as extreme negative sentiment paved the way for bulls to step in this month and scoop up beaten down names.
    • In Australia, the  ASX 200 Index climbed 0.52% to 6,794 on Thursday, closing at its highest level in over a month, as gains in the technology sector outweighed losses in commodity-linked stocks.
      • Australian technology shares rallied following strong overnight gains on the Nasdaq.
      • However, energy and mining stocks declined on weaker commodity prices, with notable losses from Rio Tinto (-2%). TE
  • Crude oil prices declined, ending its recent rally.
    • WTI trading below $100/bl and settling around the $99/bl.
    • Prices sliding for the second straight session, after an EIA report showed US gasoline inventories rose 3.5 million barrels last week, thumping expectations for a 71,000 barrel increase.
    • Demand concerns sending prices lower as mounting risks of a global recession, driven by aggressive monetary tightening, rattled oil markets and overshadowed ongoing supply tightness.
    • Oil prices have come under pressure since mid-June The US is also working on a plan to cap Russian crude prices. Energy News
  • Gold weakened toward $1,690/oz, and in turn it fell to its lowest levels in almost a year. Bullion continues to be weighed down by a rebound in the dollar and looming interest rate hikes by major central banks amid a global fight against inflation.
    • The dollar snapped a three-day decline against major peers on Wednesday as investors reassessed the Federal Reserve’s tightening path.
    • The FOMC remains on track to raise interest rates by another 75 basis points next week after pushing back against expectations of a bigger 100 basis point increase.
    • In addition, we have the ECB today that is widely expected to raise interest rates for the first time in 11 years on Thursday.
      • Some analysts suggesting that it may consider a more aggressive move.
      • Analysts also flagged a potential half point rate hike from the Bank of England next month after the country’s inflation surged to a four-decade high in June. Kitco metals
  • The US Dollar declined to 106.7 and in turn erasing gains in the previous session.
    • FX Traders weighed the Fed’s hawkish plans against expectations that other major central banks will act more aggressively to catch up with inflation.
    • The US central bank is on track to raise interest rates by another 75 basis points next week after pushing back against expectations of a bigger 100 basis point increase.
    • Markets also awaiting news that the ECB will hike for the first time in 11 years. FX NEWS

    • Italian PM Mario Draghi resigned after failing to revive his coalition government.
      • It will pave the way for fresh elections and opening a new chapter of political uncertainty.
      • Speaking to parliament, Draghi said he was going to speak to President Sergio Mattarella and inform him of his intentions after failing to unite his fragile coalition government.
      • Last week, Mattarella rejected Draghi’s first resignation and asked him to lead more negotiations with lawmakers in the hope of avoiding snap elections. CNBC

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