The ZAR continued to strengthen as US GDP confirmed a technical recession in the world’s largest economy.
- The Rand gained 2.2 % after US GDP printed negative for a 2nd consecutive quarter, and according to the economists definition entered a Recession.
- This despite Jerome Powell’s assurances (the day before) , that the World’s largest economy would not enter into a recession.
- The US economy shirking by 0.9% vs an expected growth of 0.6%, this following a 1.6% drop in Q1 .
- Bond yields collapsed with the US 10YT trading to 2.66% as investors bet the FED has gone too far.
- On the back of lower US yields, The US Dollar incurring losses across the board as the index retreated to 105.65.
- EMFX all gaining as well as the YEN.
- The Japanese currency has until recently been in free-fall against the US dollar due to divergent monetary policies.
- The Japanese yen recovering further from 24-year lows.
- Weirdly, Stocks rallied as the liquidity trade once again dominated headlines. i.e. Central banks will be forced to slow down their contractionary monetary policies.
- Recall : The Fed has a dual mandate that consists of “ Price stability and full employment “.
- Currently only one of the objectives have been met i.e. employment and the market is betting the Fed might take a “look and see “ approach to inflation.
The data calendar shows SA trade data, but it’s unlikely to have much of an effect on the markets.
- 14h00 : SA TRADE BALANCE FOR JUNE : +R29.5BN EXPECTED VS +R28.35 PREVIOUS
- This morning, look for a sharp push lower towards 16.3800 as market makers trigger weak stop losses (EXPORTS).
- There after a bounce towards 16.5000 -16.6000 is expected before ZAR gains.
- Do not be surprised if ZAR Bulls, book some profits ahead of the weekend, as we are trading at the low of the week.
- The negative US GDP likely confirming a recession and this will be ZAR / Risk asset supportive.
- The local unit also benefitting from a Weaker Dollar across the board.
Once again we remind the readers that US INTEREST RATES ( & THE FED) REMAINS THE LONG TERM DRIVER OF ASSET PRICES.
IMPORTERS ARE ADVISED TO TAKE ADVANTAGE OF A STRONGER RAND, after more than 5% gains in the last week and a half !!!
- USDZAR : Expect a range 16.3900-16.5700
- Importers 16.4400-16.3900
- Exporters 16.5200-16.5700
- EURZAR : Expect a range of 16.6200-17.0800
- Importers 16.7500-16.6200
- Exporters 16.9500-17.0800
- GBPZAR : Expect a range of 19.8600-20.2100
- Importers 20.0000-19.8600
- Exporters 20.1100-20.2100
- USDZAR 16.4800
- EURZAR 16.8200
- GBPZAR 20.0800
- Step aside rule under threat at the ANC.
- Those seeking to challenge the ANC’s step-aside rule say they cannot wait until the elective conference to push for its complete removal.
- The divisive rule, which calls for those facing corruption charges to step aside or face immediate suspension until such time that investigations are completed.
- Transnet has reported a net profit of R5 billion for the 2021/2022 financial year despite ongoing operational issues.
- The beleaguered state-owned ports and railway company had posted an R8.7 billion loss for the previous financial year.
- Toyota South Africa Motors (TSAM) commenced production of virtually all its models at its Prospecton plant in Durban.
- TSAM making the announced after the company suspended production on 12 April due to significant damage caused by flooding in April.
- The American economy shrank an annualized 0.9% on quarter in Q2 2022, following a 1.6% drop in Q1 and technically entering a recession.
- Most investors were expecting a 0.5% growth although some were betting on a negative reading. Inventories and business investment were the main drags.
- In regular trading on Thursday, the major averages gained for a second straight day as a negative GDP reading bolstered expectations that the pace of US interest rate hikes will need to decelerate moving forward.
- US stock futures rallied Friday on solid earnings from major tech companies and on expectations that the Federal Reserve will slow down the pace of monetary tightening.
- Nasdaq 100 futures jumped more than 1% and S&P 500 futures gained 0.5%, while Dow futures were flat.
- In after-hours trading, Amazon surged 13.5% on better-than-expected revenues and a positive outlook, while Apple gained 3% after beating estimates on the top and bottom lines.
- Companies slated to report earnings on Friday include Exxon Mobil, Chevron and Procter & Gamble, among others.
- Global bond yields all cratering lower on the back of US GDP data.
- The US 10YT at 2.68%, as investors rescind bets that supported a hawkish Fed.
- The results echoing across the pond as UK bond yields also declined
- Britain’s 10-year yield also close to an 8-week low dragged down by worries about the country’s economic outlook.
- Economies fighting STAGLATION : i.e. negative growth and high inflation (40yr highs).
- BoE governor Andrew Bailey opened the door for a 50bps hike in August.
- The Dow added 332 to 32,529
- The Nasdaq gained 130 to 12,162
- The Sp500 added 48 to 4,072
- image : Trading economics
- Asian markets rallied after data confirmed the world’s largest economy had entered into a recession. US GDP printing a 2nd successive quarter of negative growth.
- The dichotomy visible as we witnessed a rally in stocks prices even though corporate earnings likely to suffer. (due to the FED’s liquidity / via rates and QE).
- In Japan, the Nikkei 225 rose 0.5% to above 27,900. Japanese shares rising modestly despite a global equity rally as investors assessed mixed earnings results from major domestic firms.
- Global shares rallied as the US economy contracted for the second straight quarter, fuelling recession fears but raising expectations that the Federal Reserve may need to slow down the pace of interest rate hikes.
- In Australia, the ASX 200 climbed 0.81% to 6,945. The index closing higher and tracking overnight gains on Wall Street, as an improving risk sentiment drove a broad-based rally in the domestic market.
- The US economy contracted for the second straight quarter, fuelling recession fears and raising expectations that the Fed may hike interest rates less aggressively moving forward. Reuters
- Australian technology stocks tracked their US peers higher, with strong gains from Xero (2.3%)
- Crude oil rallied to trade at $98//bl with traders ignoring the negative US GDP print.
- Data out of the world’s largest economy indicating a Recession, that would likely result in a drop in demand.
- Traders referring to Supply problems after CEO’s of both Total Energies and Shell, indicated that production could not keep up with demand.
- In addition, OPEC+ is scheduled to meet on August 3 where the US is hoping for an announcement of additional supply.
- However, analysts warned that member countries are already struggling to meet production quotas due to underinvestment in oil fields. Energy News
- Gold continued to rally on the back of a falling Dollar as US yields tumbled following the negative US GDP data.
- The yellow metal trading at $1,760/oz. Bullion rising for the 3rd straight session to its highest in three weeks,.
- The negative US GDP data getting markets to scale back hawkish expectations from the Federal Reserve.
- Earlier in the week the US central bank raised its policy rate by 75 basis points in a widely expected move.
- This followed with Powell saying that it will likely become appropriate to slow the pace of rate increases depending on the flow of data.
- Meanwhile, gold prices are still set to decline for the fourth straight month, having faced constant pressure since mid-March from a rallying dollar and US bond yields. Kitco metals
- The US Dollar fell below 106 on Friday to its lowest in over three weeks, as the US economy contracted for a second straight quarter.
- Raising expectations that the Federal Reserve may need to slow down the pace of interest rate hikes.
- US GDP shrank 0.9% YoY in the second quarter of 2022 following a 1.6% contraction in the first quarter.
- The dollar retreated further from a 20-year high of 109.3 reached in mid-July and is on track to decline for the second straight week.
- Strong gainers for the week were the YEN (+3.6% ), the Euro ( +1.58% ), the Pound ( +2.16% ). FX news