The ZAR strengthened on the back of a dovish FED.
The Rand gained 20 cents to reach R17.50/$ after traders called the Fed’s non commitment to hikes as dovish.
- Last night the Fed Hiked Rates to 22-Year High.
- It was in line with market expectations, bringing borrowing costs to the highest level since January 2001.
- Jerome Powell declined to commit to future rate paths and said he would let incoming data guide the FOMC.
- Risk assets higher across the board as traders speculate US rates have peaked.
Key data today will be the release US GDP
- The US economy GDP is expected to have increased at an annualized rate of 1.8% in Q2 2023, which would mark the slowest growth in a year, following a 2% rise in Q1.
- Consumer spending is expected to remain robust, although it likely increased at a smaller pace, while business investment probably accelerated, boosted by equipment such as aircraft and motor vehicles.
- Government spending is also seen as contributing to global growth, while net trade is expected to be a drag, and residential investment probably declined again.
- Investors are growing increasingly confident that the US economy can avoid a recession this year, thanks to a strong labour market, wage gains, and savings.
In addition, the European Central Bank is expected to implement another 25 bps interest rate hike on today.
- The decision, raising the rate on main refinancing operations to 4.25%, the highest level since October 2008, and the rate on the deposit facility to an over 22-year high of 3.75%.
- it will mark the 9th consecutive rate hike since the commencement of ECB’s tightening cycle in July 2022.
Data This week
- 11H30 : SA PRODUCER INFLATION PPI 6% YOY VS 7.3% PREVIOUS
- 14H15 : ECB RATES DECISION +25BPS EXEPCTED TO 4.25%
- 14H45 : ECB PRESS CONFERENCE
- 14H30 : US GDP GROWTH RATE +1.7% EXPECTED VS 2% PREVIOUS
- 14H30 : US DURABLE GOODS MOM +0.75 VS +1.7% EXPECTED.
- 14H30 : US WEEKLY JOBLESS CLAIMS +235K EXPECTED VS +228K PREVIOUS
- 14H30 : US CORE PCE MOM +0.2% VS +0.3% PREVIOUS
Market Movement Today:
- The ZAR rally continued in early trading with the local unit once again approaching R17.500/$.
- Last night the FED hiked the anticipated 25bps, but forward guidance remained data dependent.
- Powell’s non-committal was seen as dovish, resulting in another risk rally.
- The Dollar declining as benchmark indices like the Sp500 rallied and approached 4600.
- Gold also higher at 1980/oz
- Bond buying continuing (albeit at a slow pace) with the JSE reporting another R1.5billion purchased.
- On the data front, US GDP likely to have an effect on markets later this afternoon with SA PPI unlikely to move the market at 11h30.
- Markets expecting the GDP at 1.8% vs 2% previous.
For now sentiment in favour of the ZAR and we expected more gains for the local unit.
- Trade : SELL USDZAR on rallies
Markets this morning
- USDZAR 17.6300
- DOLLAR 100.66
- EURUSD 1.1128
- SP500 4,593
- GOLD 1981
- US10YT 3.85%
- USDZAR : Expect a range 17.4400-17.7400
- Importers : 17.5400-17.4400
- Exporters : 17.6400-17.7400
- EURZAR : Expect a range of 19.3600-19.6600
- Importers : 19.4600-19.3600
- Exporters : 19.5600-19.6600
- GBPZAR : Expect a range of 22.6500-22.9500
- Importers : 22.7500-22.6500
- Exporters : 22.8500-22.9500
- USDZAR : 17.6300
- EURZAR : 19.5500
- GBPZAR : 22.8000
- Deputy President Paul Mashatile’s protectors, who are in court for assault, have blamed the media and civil society for their arrests.
- The eight men, who are currently suspended from the SAPS VIP Presidential Protection Services Unit, were filmed earlier this month beating three men on the side of the N1 highway in Fourways.
- The group made its second appearance at the Randburg Magistrates Court on Wednesday.
- They are facing charges of several counts of assault, causing malicious damage to property and the pointing of a firearm. Source EWN
- Eskom estimated there’s 4 400MW of rooftop solar installed in SA
- Twice as much as last year, and already double the amount of solar procured in government’s programme
- Eskom has for the first time published data on the amount of rooftop photovoltaic (PV) solar it believes is installed in South Africa.
- By June, the maximum capacity of this generation totalled 4 411.5MWp (megawatt peak), a 95% increase on the 2 264.5MWp installed in July last year.
- This itself is a doubling of the just under 1 000MWp installed at the end of the first quarter.
- An interesting comparison can be made between the 4.4GWp of rooftop solar installed by households and commercial properties.
- Compared to the 2.2GWp installed to date under government’s Renewable Energy Independent Power Producer Procurement Programme (Reipppp).
- Today, there is double the amount of rooftop solar in place than solar farm capacity that has been procured under four bid windows. Source moneyweb
Equities continue to rally on the back of a dovish Fed.
- In regular trading on Wednesday, the Dow rose 0.23%, while the S&P 500 and Nasdaq Composite fell 0.02% and 0.12%, respectively.
- Those moves came as the Fed delivered a widely expected 25 basis point rate hike.
- Fed Chair Powell said the central bank will take a data-dependent approach on future hikes and had not made a decision on whether to hike rates at its next meeting in September.
- US stock futures were mixed on Thursday as investors continued to assess the latest Federal Reserve policy decision and a fresh batch of corporate earnings reports.
- Dow futures fell 0.15%, S&P 500 futures were flat and Nasdaq 100 futures gained 0.2%.
- In extended trading, Meta Platforms jumped 7% on better-than-expected quarterly results and strong sales guidance for the third quarter.
The FED raises by 25
- The yield on the US 10-year Treasury note eased toward the 3.85% level on Wednesday remaining below the four-month high of 4% touched earlier in July.
- The Federal Reserve raised its funds rate by 25bps to 5.5%, as widely expected by financial markets.
- The FOMC reiterated that its decision will depend on economic data to be released until the FOMC’s September meeting.
- It raised doubts on whether the current tightening cycle could be extended or has been concluded.
- The latest headline inflation rate fell more than financial markets expected to 3%, but the core reading remained stubbornly high at 4.8% and the labour market continues to show signs of tightness.
- Still, swap prices reflect bets that the central bank will hold borrowing costs steady before easing them to a less restrictive level by the first quarter of 2024. Source: the Federal reserve
- DOW +82 TO 35,520
- SP500 -0.7 TO 4,566
- NASDAQ -17 TO 14,127
image: Trading economics
Stocks rallying on the back of dovish Fed.
- In Japan, the Nikkei 225 Index rose 0.68% to close at 32,891, hitting their highest levels in three weeks as investors digested the US Federal Reserve’s policy decision overnight.
- The Fed implemented a widely expected 25 basis point rate hike at its July meeting in what analysts suggested could be its last rate increase in the current monetary policy tightening cycle.
- Technology stocks led the charge, with notable gains from Tokyo Electron (2.7%), SoftBank Group (1.1%).
- Other index heavyweights also advanced. Source Reuters
- In China, the Shanghai Composite rose 0.5% to around 3,240 hitting its highest levels in about two weeks.
- The rally on the back of a market perceived “ dovish Fed” and as China’s pledge to shore up the economy bolstered the market outlook.
- Latest data also showed that Chinese industrial profits declined by 16.8% in the first half of the year, reinforcing expectations that authorities would ease policy further.
- Financial, property and consumer-related stocks led the charge.
- New energy and technology firms also advanced. Source Trading economics
Oil prices higher
- Brent at $83/bl and US WTI crude higher above $79/bl on Thursday.
- Prices hovering near a three-month high hit earlier in the week, as the prospect of tighter global supply and a rebound in Chinese demand supported the market.
- Oil prices have rallied more than 10% this month due to voluntary output cuts by Saudi Arabia and Russia, as well as indications from OPEC+ of its willingness to take further action.
- Chinese authorities also pledged to step up policy support to shore up the economy, bolstering the outlook for the world’s top crude importer.
- After coming under pressure, prices rebounded on Wednesday after the US Federal Reserve raised interest rates by 25 basis points.
- The European Central Bank is also expected to tighten policy further on Thursday and signal further rate increases amid persistent inflation. Source : Gulf news
Precious metals rebound on the back of a dovish Fed.
- Gold rose toward $1,980/oz on Thursday, rising for the third straight session amid a general dollar weakness.
- The FED implemented a widely expected 25 basis point rate hike in what analysts suggested could be the end of the current policy tightening cycle.
- Still, Fed Chair Jerome Powell opened the door for further rate increases, but insisted that the central bank would take a “data-dependent” approach in the upcoming meetings.
- He added that the economy still needed to slow and the labour market to weaken for inflation to “credibly” return to the 2% target, but no longer forecasts a US recession.
- Investors now shift their attention to the ECB’s policy decision on Thursday, where it is expected to lift rates further amid persistent inflation.
- Meanwhile, the BOJ is anticipated to maintain its ultra-easy monetary policy on Friday. Source : Kitco
Dollar remains under pressure.
- The US dollar fell below 101 on Thursday.
- The Buck sliding for the third straight session after the Federal Reserve implemented a widely expected 25 basis point rate hike in what analysts suggested could be its last rate increase.
- Fed Chair Jerome Powell insisted that the central bank would take a “data-dependent” approach going forward when determining additional hikes.
- He also clarified that no decision to raise borrowing costs further has been made.
- The dollar also eased as traders brace for the European Central Bank’s policy decision on Thursday, where it is expected to lift rates further amid persistent inflation.
- Meanwhile, the Bank of Japan is anticipated to maintain its ultra-loose monetary policy on Friday.
- The greenback weakened across the board, with the most pronounced selling activity against the South African Rand, Australian and New Zealand dollars. Source Forexlive