The ZAR opening the week on the backfoot near weakest levels on the back of major central bank decisions as well as Eskom.
- In addition, the world awaits major central bank rate decisions.
- First up is the US FED and FOMC on Wednesday with markets expecting 75, but some scope for 100 remains.
- This is followed by the SA Reserve Bank MPC rate decision on Thursday, where the market expects 75 bps as well.
- NB: Currently both Central banks are expected to raise by 75 bps.
- NB: the SARB NEEDS TO AT LEAST MATCH THE FED DECISION,
- THIS WILL ALLOW THE ZAR TO MAINTAIN THE ZAR CARRY GAP AND AVOID AN EVEN MORE RAPID DECLINE IN THE LOCAL UNIT.
- Data wise, we also have SA inflation Wednesday, which could also influence the decision by the SA MPC.
Significant Market Data
- 14h30 : US HOUSING STARTS +1.45 Million expected vs 1.44mio previous.
- *** ( the US housing sector indicating the health of the economy especially after continued rate hikes by the Fed.)
- 10H00 : SA INFLATION 7.5% YOY EXPECTED VS 7.8% PREVIOUS YOY
- 10H00 : SA CORE INFLATION 4.7% YOY EXPECTED VS 4.6% PREVIOUS YOY
- 20H00 : US FED RATE DECISION +75 BPS EXPECTED – FED FUNDS MOVING FROM 2.5% TO 3.25%
- 20H30 : US FED CHAIR ADDRESSES THE MEDIA
** Jerome Powell’s language will once again be under intense scrutiny for future rate hikes.
- 09H30 : SNB ( SWISS CENTRAL BANK) +75 BPS . ( ** the Swiss moving from negative rates to positive is significant).
- NB -0.25 % PREVIOUS TO +0.50%
- 13H00 : BOE MPC RATE DECISION +50 BPS EXPECTED
- 15H00 : SARB MPC RATE DECISION +75 BPS EXPECTED
- ** REPO FROM 5.5% TO 6.25%, PRIME FROM 9% TO 9.75%
- 20H00 : US FED CHAIR JEROME POWELL SPEECH
- This morning we are once again weaker with 17.8000 firmly on the cards.
- The ZAR vulnerable due to local ESKOM power cuts, but more significantly, Global Central Bank Rate decisions.
- The SARB, as well as the FED, BOE and SNB all expected to hike rates and drain more liquidity from the global financial system.
- This all to combat sticky inflation as central bankers try to reverse their policy mistakes of 2021, where they all used “transitory” as the inflation buzz word.
- Markets all cautious, with stocks lower, bond yields higher and EMFX under pressure vs a rampant Dollar.
- NB: It is unlikely the ZAR will benefit in this environment and we expect RISK ASSETS TO REMAIN UNDER PRESSURE.
- It is vital for the SARB to at least match the FED to avoid further weakness in the local unit .
- Trade: BUY USDZAR
- USDZAR : Expect a range 17.5800-17.9400
- Importers 17.6800-17.5800
- Exporters 17.8200-17.9500
- EURZAR : Expect a range of 17.5000-17.8000
- Importers 17.6000-17.5000
- Exporters 17.7000-17.8000
- GBPZAR : Expect a range of 20.0500-20.3500
- Importers 20.1100-20.0500
- Exporters 20.2500-20.3500
- USDZAR 17.6800
- EURZAR 17.6500
- GBPZAR 20.1700
- Eskom’s constrained electricity system is almost on its knees.
- The utility is now implementing Stage 6 blackouts.
- It says this is due to the tripping of generating units at Kusile and Kriel power stations.
- Stage 6 was implemented at 4am on Sunday.
- The escalation means the utility is removing 2,000 megawatts of demand from the grid but Eskom will continue to operate on a thin margin.
- The utility is appealing to the public, to help conserve electricity.
- Eskom is set to hold a media briefing on Sunday at 10am, to update the public on the way forward. MONEYWEB
- President Cyril Ramaphosa on Friday agreed to cooperate closely with US President Joe Biden on health, security and climate.
- but warned against punishing African nations for maintaining ties with Russia.
- The Biden administration has put a new focus on Africa after being taken aback by the reluctance of some nations to condemn Russia over its invasion of Ukraine, which has triggered sweeping Western sanctions.
- Ramaphosa enjoyed unusually warm treatment from Biden, who walked him back to his motorcade at the White House. NEWs24
- Following an urgent board meeting while Stage 5 load shedding was biting on Saturday 17 September.
- Eskom will on Monday start to urgently procure additional energy from existing independent power producers.
- This announcement was made during an emergency media briefing by Eskom group chief executive André de Ruyter on Sunday morning.
- De Ruyter said he hopes to access about 1 000MW from existing independent power producers like Sasol and Sappi and hopes to have it online within a week or two. Money web
- The market expects that interest rates will rise as the Fed battles inflation.
- Currently +75 bps is priced in.
- Earlier, Fed Vice Chair, Lael Brainard, said higher rates likely to remain there for some time to provide confidence that inflation is moving down towards the central bank’s 2% target.
- She added that at some point in the tightening cycle, the risks of going too far would become more obvious.
- Fed fund futures implied investors were pricing in a more than 81% chance of another supersized 75 basis-point interest rate hike in September. source: Federal Reserve
- US stock futures edged lower on Monday as investors braced for this week’s Federal Reserve policy meeting.
- It is expected to deliver another jumbo rate hike as it remains committed to bringing down inflation.
- Last week, the Dow fell 4.13%, the S&P 500 dropped 4.77% and the Nasdaq Composite sank 5.48%.
- All three benchmarks posting their 4th losing week in 5 and tumbling to their lowest levels in two months.
- Markets remain under pressure ahead of a much anticipated FED decision on Wednesday. CNBC
- The US 10YT yield rose above 3.46% and fast approaching the over 10-year peak of 3.5% hit in June.
- The rise on the back of rising concerns that inflation is becoming entrenched,
- Resulting in deepened expectations that the Federal Reserve will further accelerate the pace of its monetary tightening.
- After last week’s CPI report surprised to the upside, the latest data showed that retail sales unexpectedly pick up and weekly unemployment claims fell to their lowest since May.
- Although markets priced in 75 bps, there continue to be open bets that the Fed could raise interest rates by 100bps on Wednesday. Bloomberg
- The Dow FELL 139 TO 30,822
- The SP500 DECLINED 28 TO 3,873
- The Nasdaq FELL 103 TO 11,448
- Asian markets all following Wall Street lower ahead of this week’s FED FOMC meeting.
- In Japan, the Nikkei 225 dropped 1.11% to close at 27,568, hitting its lowest levels in a week and taking cues from a weak overnight session on Wall Street.
- Investors nervous about high inflation, rising interest rates and slowing growth globally.
- Economic worries highlighted after FedEx CEO Raj Subramaniam said on Thursday that he believes the global economy was headed for a recession.
- He cited declining global shipment volumes as “macroeconomic trends significantly worsened.”
- In Australia, the ASX 200 eased 0.15% to close at 6,729. The index extending losses from last week as investors remained cautious ahead of central bank decisions this week.
- Tech stocks led the decline, with sharp losses from Computershare (-4%), while Energy firms also slumped on subdued oil and coal prices
- Traders expecting an aggressive move from the US Federal Reserve to combat inflation.
- Crude Oil futures fell to $84.5/ bl on Monday, extending three weeks of declines.
- Oil traders citing aggressive monetary tightening and recession fears. This coupled with fears on the demand outlook ahead of the EU embargo on Russian oil in December.
- Investors are preparing for a raft of interest rate decisions this week, led by the US Federal Reserve which is expected to deliver another supersized rate hike to combat inflation.
- The German government announced it had taken temporary control of two subsidiaries of the Russian energy giant Rosneft.
- The move by the government puts it in charge of Rosneft’s stakes in three refineries in the country.
- This includes a key facility in the northeast of the country which supplies around 90% of Berlin’s fuel, and in which Rosneft held a majority stake. Reuters
- Gold prices weakened below $1,670/oz and in turn extending last week’s sharp decline as investors geared up for a raft of interest rate decisions by major central banks this week.
- The FED is expected to deliver another jumbo rate hike to tame surging inflation.
- Higher-than-expected inflation numbers and solid economic data in the US last week cemented expectations that the Fed will tighten further.
- Markets are currently priced for a third straight 75 basis point increase.
- Gold lost its shine as a store of value in times of economic uncertainties as the US’ relative economic strength and the Fed’s aggressive stance against inflation lifted the dollar at the expense of other safe-haven assets. KITCO metals
The US Dollar
- The US dollar traded above 110 to 110.10 as investors remained on the side-lines ahead of a big week for central bank decisions.
- Decision headlined by the Federal Reserve which is expected to deliver another supersized rate hike to tame surging inflation.
- Higher-than-expected inflation numbers and solid economic data in the US last week cemented expectations that the Fed will tighten further, and markets are currently priced for a third straight 75 basis point increase.
- The US economy also showed relative strength in the face of slowing global growth, making the dollar attractive for investors looking for safety.
- Meanwhile, investors remained cautious as other major central banks such as the Swiss National Bank and the Bank of England are also expected to raise interest rates this week.
- NB: Hawkish surprise could spur more currency volatility. FX NEWS