Markets Update with TreasuryONE

Andre Cilliers, Currency Strategist at TreasuryONE, chats to The Money Show host, Bruce Whitfield about currency instability that has resurfaced due to geopolitical factors contributing to speculation on the dollar.

Zimbabwe’s new currency, the ZiG, strengthened a day after its debut. The currency gained 0.2% to 13.53 per US dollar, according to data published on the Reserve Bank of Zimbabwe’s website on Tuesday.

Currency Strategist at TreasuryONE, Andre Cilliers tries to explain why the United States of America's dollar is starting to weaken and the factors contributing to the dollar downfall.

TreasuryONE Currency Risk Strategist, Andre Cilliers, joins the breakfast show on Kaya FM to discuss currency manipulation.

#currencymarkets #financialnews #currencymanipulation

Andre Cilliers on Kaya fm

TreasuryONE Currency Risk Strategist Andre Cilliers joins the team on Power Talk to discuss currency manipulation.

#CurrencyManipulation #currencymarkets #currencynews

TreasuryONE Currency Risk Strategist Andre Cilliers joins the team on Power Talk to discuss currency manipulation.

#CurrencyManipulation #currencymarkets #currencynews

President Cyril Ramaphosa made the surprise declaration of a special public holiday in honour of the Springboks win of the Rugby World Cup in France. TreasuryONE currency strategist Andre Cilliers considers the impact of the additional public holiday on the South African economy.

The Treasury is set to increase borrowing, cut expenditure, and implement tax hikes to offset a revenue deficit projected at nearly R57 billion rand. A rising trend in deficits and debt is evident, with the gross debt expected to hit 77.7% of GDP by 2025-26, up from 73.6%. Over the upcoming three years, the proportion of debt-service costs relative to revenue will grow from 20.7% in 2023-24 to 22.1% in 2026-27, as highlighted by Godongwana. The upcoming year's debt costs stand at approximately R385.9 billion rand, a figure comparable to Eskom's total outstanding dues.

Sales of domestic bonds are projected to rise by 14% in this financial year. The consolidated budget deficit is anticipated at 4.9% of the GDP for this year, a growth from the 4% predicted in February. The minister is poised to reveal tax hikes come February, aiming for an added R15 billion rand in revenue, though the sources remain unspecified. This marks the first tax increase in several successive years.

The economy's growth is projected to average around 1.4% over the next three years.

While there's no allocation for Transnet's bailout, provisions have been made for a pay raise for state workers, and the Covid-era welfare payment will persist for an additional year. "The SRD grant has shown resilience. Although I've previously indicated it ends annually, the termination has now been openly set for March 2025. However, its actual conclusion in 2025 shouldn't be taken for granted," emphasizes Godongwana.

Commenting on the situation, Pravin Gordon pointed out the absence of a bailout for Transnet, South Africa's struggling logistics entity. The firm's insufficient coal and commodity transport is partly to blame for the government's tax revenue shortfall. However, the omission might be justifiable if there's a strategic plan for the company's revival.

The Congress of South African Trade Unions, the nation's foremost labor faction and a political ally, expressed their disappointment. The Treasury, in their opinion, missed an opportunity to present an impactful MTBPS to rejuvenate the lukewarm economy, support the less privileged, and strengthen the state. Instead, it offered a modest financial report with drastic budget cuts and marginal departmental increases over the forthcoming three years.

Contrary to expectations, bond yields have begun to decline slightly. The bond and rand market's reaction indicates that the debt augmentation was anticipated. The market's response was unexpected, given the budget's apparent detriment to the bond and rand sectors. Yet, the rand has surged after the finance minister's address, and bond yields have declined. Does this follow the "buy the rumor, sell the fact" adage? At a minimum, the budget dispels recent financial speculations. The rand is trading around R18.60 currently.

Finally, Godongwana notes that the terms set on Eskom's debt relief will serve as a precedent for other state enterprises seeking financial aid. The support will diminish if the company falls short of its objectives. Over the past decade, underperforming utilities and businesses have drained taxpayers of hundreds of billions of rands.

With the recent outbreak of hostilities between Hamas and Israel, we can possibly see the global market landscape shift. Coupled with that, as US treasury yields continue to climb, many are wondering when the Federal Reserve will consider pausing or adjusting its monetary policy. In an ever-changing world, understanding what comes next is crucial. TreasuryONE hosted a webinar with ETM Analytics, where we explored emerging trends, geopolitical developments, and economic trends to provide you with valuable insights into the evolving global landscape. 👉 The Impact of Geopolitical Conflicts: Analysing the recent hostilities between Hamas and Israel, and their potential effects on the global market landscape. 👉 The Role of Monetary Policy: Understanding the implications of rising US treasury yields and anticipating the Federal Reserve’s next moves. 👉 Predicting the Future: Exploring emerging trends, geopolitical developments, and economic indicators to forecast the evolving global landscape. #MarketRisk #currencynews #financialmarkets #financialnews

TreasuryONE's Currency Strategist, Andre Cilliers, talks to the hosts of Hot 1027 fm Business on Forex trading.

Forex trading volumes in South Africa are projected to be over $19.1 billion.

Wichard Cilliers, Andre Botha, and The Finance Ghost dives into some of the most pressing topics surrounding currency and financial news.

#TreasuryONE #financialmarkets #currencynews

Big Mac indexAndre Cilliers, Director and Currency Strategist at TreasuryONE on the Big Mac Index revealing that the ZAR is undervalued by 50%.

#CurrencyMarkets #BigMacIndex #TreasuryONE #702 #TheMoneyShow

The latest update to The Economist's Big Mac index shows that - theoretically - the rand should be trading at R8.94/dollar. The index compares the prices of McDonald's Big Mac hamburgers in different countries to determine whether currencies are overvalued, or too cheap.

In this interview with KAYA FM, Andre Cilliers, Currency Strategist at at TreasuryONE gives his insight.

#KayaFM #TreasuryONE #BigMacIndex

It’s already been a busy week with an interest rate announcement still to come as well. Credit ratings agency, Fitch has fired a warning shot calling on the South African government to keep its debt to GDP ratio in check, or face a further downgrade into junk territory. Failing state owned enterprises and municipalities have drained the fiscus, non more so than Eskom, which, by the way, is possibly coming into more troubles. It’s former Chief Operating Officer, Jan Oberholzer will officially exit Eskom at the end of the month and the Minister of Energy has expressed doubts about Koeberg’s refurbishment timeline. Unit one is scheduled to return to service this July with Unit two being taken out in September. If this process overlaps leaving both units out of commission, it will wipe out electricity generation equal to one stage of loadshedding. With all these problems, it’s not surprising that capital is fleeing our shores. Ninety One, South Africa’s biggest asset manager has lost nearly R110 billion in assets under management in the past three months - a staggering amount. PLEASE NOTE: Following Wednesday morning’s release of June’s inflation figures, ETM now expects the SARB to leave the repo rate unchanged at Thursday’s announcement. Annual CPI declined from 6,3% in May to 5,4% in June. Core inflation ( CPI excluding food and fuel) also dropped slightly to 5% last month. Inflation is expected to drop further in July which could provide some breathing room for the SARB. #financialmarkets #financialnews #currencynews #currencymarket

The Minutes from the Federal Reserve’s June meeting took centre stage last week---almost all the Fed officials voted to pause in June to buy time to assess the impact of its monetary tightening so far---which is a cumulative 500 basis points to date….and the cracks from the tighter monetary conditions are starting to show up here and there…the non-farm payroll data, published on Friday, while still reflecting was softer than expected. But not sufficiently so to stop the Fed’s plans to bump rates by a further 25 basis points before the end of the year---this was also revealed in the minutes and is in line with market expectations. This may force other central banks to follow suit—including the SARB, which by the way, seemingly still has some way to go to pull inflation back within the target band. Meanwhile, in a recent radio interview, governor Lesetja Kganyago said inflation has turned a corner and he expects CPI to come in below 6% soon. At the same time, the Bureau for Economic Research survey last week, showed inflation is expected to remain stubbornly high for the rest of the year going into 2024. Either way, the outlook for the second half of 2023 is difficult to predict with a number of countervailing forces. You have the SARB which is likely to follow any rate hike put out by the Fed while risk aversion and lower commodity prices will weigh on the economy. As recessionary conditions take hold abroad, exports will come under pressure while a domestic recession will dampen demand for imports. It could pile pressure on the Rand---which already has a lack of resilience to external shocks. #currencynews #currencymarket #financialmarkets #financialnews

Last week we watched Russia; this week it’s France, where nightly riots and looting events have popped up in some places - including Paris - following the death of a teenager at a roadblock. Although events may be losing steam, fears remain that similar flare-ups could spread. It is reflective of how flammable some parts have become due social inequality, income disparities and xenophobic trends in some parts of the world. Back in South Africa, President Ramaphosa’s Phala- Phala hangover continues. The recent decision by the office of the acting Public Protector to clear the Buffalo of all wrongdoing, saying most of the allegations were based on hearsay. In its annual report, the SARB has expressed concern about the increasing commercial bank exposure to government debt as the state’s finances continues to deteriorate as the power crisis continues to take its toll on the economy. It should come as a warning to foreign investors to price their positions accordingly and being aware that not all risks are instantly visible but may be tied to sinking State-owned entities and municipalities struggling to stay afloat. Speaking of central banks, the gathering of central bank chiefs at the ECB’s annual conference in Portugal were closely monitored for any signals on monetary policy. Both the ECB and Fed indicated that they were approaching their terminal rates, the Bank of England hinted at more hikes to come while the Bank of Japan gave no reason to believe its loose monetary policy is going to change anytime soon. #marketsupdate #currencynews #financialmarkets #currencymarket

The dust has now settled in Moscow and now everyone is wondering what’s going to happen next. Yevgeny Prigozhin marched on the capital city –in what he says was to protect the Wagner group. The events of the past weekend followed months of tension between Prigozhin and Russia’s military leaders who have been pushing for control over the mercenary group. But the Wagner leader was never going to give up his cash cow without a fight. Any case…the one thing that we can take with some degree of certainty from these developments is that it cracked the veneer of Putin’s all-powerful authoritarian persona. The President looked weak as army tanks simply rolled onto Moscow—and the quick change in sentiment does not align with his image as an iron-fisted leader. Now the world is waiting on Putin’s next move… Will will he intensify the Ukraine war to win back his power stance or is this the chance Ukraine and his allies have been waiting for to cut the offensive off at its knees? The other, less likely scenario—is that this may have given Putin’s domestic political opponents an opportunity to boot him from power. We’ll just have to wait and see how the former KGB will react to being pushed into a corner. Markets seemed fairly unfazed by the events. It did bump oil prices which started on a strong foot this week and we saw a rally in the price of gold as well. #FinancialMarkets #FinancialNews #CurrencyMarkets #currencynews

The Rand is having a good June—managing to reverse May’s losses and even made back a little more ground. It has now reached a point where in the absence of a fresh catalyst, the ZAR faces a tough task punching through the R18-20 to the Dollar mark..it could enjoy a more consolidative trading session this week—barring any corrections in the US Dollar.

#SARB #IntererestRate #Inflation

The Rand recorded its weakest closing levels against the US Dollar on Friday - as South Africa’s risk profile continues to deteriorate. But the ongoing US debt ceiling discussions have put the greenback on the defensive - however a breakthrough is expected soon, which is expected to settle the markets somewhat and provide a boost for a broader risk appetite. The Rand is expected to take direction from Thursday’s MPC announcement. If the central bank’s response is considered too soft, the Rand could be in for another sell-off - whereas markets may be more welcoming to a bold move.

#FinancialMarkets #CurrencyUpdate #CentralBanks #Inflation #InterestRates

Andre Cilliers, director and currency strategist at TreasuryONE gives insight on the performance of the rand

#KayaBizzFM #TreasuryONE #AndreCilliers #ZAR #CurrencyMarkets

A thought-provoking discussion about the concept of dedollarisation. In this episode, we explore the potential signs of a shifting global landscape away from the dominance of the US dollar and the implications it may have on international trade, currencies, and economic stability.

#Dedollarisation #FinancialMarkets #GlobalEconomy #TreasuryONE #ETMAnalytics

After the vast moves from last week, we have seen that the Rand has started to stabilize a little. The Rand briefly broke below R19.00 against the US dollar but has traded sideways between R19.03 to R19.12 for most of the day. We did see the Rand move stronger in the Asian trade, and one can only hope that a few days of no new headlines could help the Rand break below the R19.00 level. The US dollar also firmed up in Asian trade, which allowed the Rand to gain more on the crosses, with the Euro and Pound back below the R21.00 and R24.00 mark, respectively. The data calendar is relatively thin, and this will give renewed focus to news headlines. As we have seen, headlines are paramount to Rand's moves. Each headline poses a two-way risk for the Rand.

The Rand has been hitting the headlines for all the wrong reasons of late, and we did see the Rand touch a new all-time level, with the Rand touching R19.50 at its height today. The Rand did have some reprieve and is currently trading at R19.3000 against the US dollar. With headlines currently in focus, it only takes a negative headline to see the Rand break higher again, and the world now has its magnifying glass on the Rand due to the allegations of supplying munitions to Russia. All the indications show that the Rand is massively oversold, but that has gone out the window in the short term until the dust has settled on the current issues facing the Rand.

It will be interesting to see the course of action that the SARB and Government will take to calm markets and give some confidence back to the Rand and the local market. We have seen at the back end of the day that the US dollar is running stronger, which has caused the Rand to trade back above R19.3000. The EURUSD is currently trading below 1.0900 at 1.0872. The Rand will struggle to break lower should the US dollar continue strengthening.

The report that SA has been arming Russia has been the final nail in the coffin for the ZAR today, pushing the USD-ZAR to near-record highs. The USD-ZAR intraday high stood at R19.33, marking a week-to-date loss of more than 5% for the rand against the USD. If the accusations are true and hold water, sanctions on SA become a real possibility.

George Glynos from ETM takes us through all the local factors that are hampering the rand currently, highlighting the problems at Eskom.

#Eskom

Rand Update

The rand is trading back towards the middle of our wider range, currently floating just above the R18.30 handle. Risk sentiment remains unfavorable for EMs, with most currencies unmoved on a lackluster day. Focus is shifting towards the US inflation print on Wednesday, with inflation expected to ease to 5.5% in April. That said, the dollar is holding its ground against the euro and the pound.

Commodity Sector rebounds

The recent turmoil in the commodity space has seen some reprieve today, with oil prices up over 1.5% on the back of expected OPEC+ production cuts. Gold is stabilizing above the $2,020 mark as recession fears continue to ring in our ears, and risk-off is still visible ahead of the US inflation print. Other metals have also rebounded, with palladium trading back above $1,560 and platinum trading 1.8% higher on the day, as there seems to be ETF buying.

#TreasuryONE #Inflation #OilPrice

US non-Farm Payrolls hurt EM

US non-farm payrolls surprised on the top side once again, coming out at 253,000 versus the 185,000 expected. Unemployment in the US fell to 3.4% in April from 3.5% a month prior. Average hourly earnings are also up. Treasury yields are also rising as interest rates could stay higher longer. We have seen the US dollar on the front foot, with the greenback trading below the 1.1000 level after the release of the number, and this has caused the Rand to weaken to within sight of the R18.5000 level. We have seen other EMs reversing some of their losses after the initial non-farm knee-jerk, but the Rand is lagging the pack again. We have also seen Gold lose a lot of its shine, with the Gold losing over 2% after the non-farm number, the metal trading at $2,000 per ounce after trading at $ 2,070 yesterday.

The cat is now among the pigeons with this number, as we have not seen any weakness in the non-farm data. This has also given the belief that the US economy will not go into recession and can live with higher interest rates for longer. We have also seen that Brent Crude Prices have surged after the number as a strong US economy will be good for oil demand. Next week we have the US inflation number, which could either confirm the belief that the non-farm numbers created or confuse the market.

#Recession #InterestRates #BrentCrude #Inflation #TreasuryONE

ECB follows Fed

The ECB followed in the footsteps of the FOMC last night by hiking 25bps earlier today. The ECB commented that they are not yet close to pausing interest rate hikes and are closely following inflation and pressures on the financial system. The gold price continued to rally during the day, with the yellow metal testing $2,070. The impact of tightening monetary policies and global recession fears backdrop have seen other commodities like Oil drop further and could continue to pressure prices in the coming weeks.

Rand Update

Locally the rand is still finding it tough to show any signs of a recovery back to R18.00 and below. We have seen most emerging market currencies trading sideways for most of the day, except Brazil, which is under pressure after leaving interest rates unchanged overnight. Tomorrow’s Non-Farm Payrolls print will be closely watched as always, where unemployment is expected to rise to 3.6%. Job numbers have been mixed this week, with ADP employment numbers surprising to the upside while JOLTs and Weekly Jobless claims printed lower.

#Inflation #InterestRate #EmergingMarkets

Oil continues to fall

Oil is down for a third straight day, with WTI oil below $70 a barrel. The prospect of the US recession and the spillover effects worldwide is curbing oil demand. OPEC+ members will loom to cut supply, and with inventories in the US falling by less than expected, will this halt the slide?

All eyes on the US Fed

Will Fed Chair Jerome Powell speak dovish or hawkish after the interest rate announcement is key this evening? The market is fully expecting the Fed to hike by 25bps. ADP job numbers came out better than expected today as there was a spur in private-sector hiring, although at slower pay growth. The slower pay growth could help tame inflation. The Fed will look at this after the JOLTS number disappointed yesterday to look at the labor market as still buoyant.

USDZAR recovering yesterday’s losses

The USDZAR is trading back at levels where we opened up yesterday and could rally this evening after the Fed interest rate. Still stuck in the R18.00 to R18.50 range and currently sitting at the pivotal R18.25 level, the rand could go either way this evening.

#OilPrice #ZAR #InterestRate #Fed #JeromePowell

Risk-off ahead of the May FOMC meeting?

JOLTS data came out under expectations for the second month in a row. It shows that job openings are declining and now sits at the lowest level in 2 years, indicating that the US labor market is cooling. The US equity markets are under pressure on the back of this. We are seeing more risk-off creeping into the market, with the May FOMC meeting starting tonight. Markets have fully priced in a 25bps hike, but the focus will purely be on the commentary post the meeting. Gold is also trading up over 1% on the day as its safe haven status comes into play as recession fears grip the market. The dollar is currently trading in green against most currencies on the back of the JOLTS data and tomorrow's rate hike. The rand is testing the upper end of the R18.00/R18.50 range.

Oil prices fall sharply

Both Brent Crude and WTI have fallen over 3% today as weak Chinese economic data, the expectation of further monetary tightening by both the FOMC and the ECB this week, and the fact that Iran and Russia continue to find buyers of their crude. We have recently learned that OPEC+ countries have cut production, but the factors we have mentioned currently outweigh the lower output. Brent Crude is trading back at levels we saw in late March and is now quoted at $76.57.

#FOMC #OilPrice #MonetaryPolicy #ECB #CentralBanks

The Rand and other currencies traded sideways for most of the day, with the Rand trading in a 10-cent range. We had a little flurry of activity after the PCE inflation release, but the action was quelled quickly as the number came out as expected (4.6%). The US dollar has been trading around the 1.1000 level for most of the day, and we believe markets will continue to trade in a sideways fashion, at least until the FOMC meeting next week. One thing to keep an eye on is the banking crisis in the US rearing its head again with rumours that First Republic Bank is in a little bit of strife. Another factor that could impact the Rand is the thin liquidity of Monday being a public holiday, but should no adverse events happen on the weekend, the status quo should remain.

#ZAR #Inflation #FinancialMarkets #FinancialPodcast #USBankingCrisis

With renewed questions about the banking sector in the US and risk-off regarding the recession talk in the market, we have seen the market unsure of what can happen next, and the market has been trading erratically on the back of that. Just how erratic the market has been, we have seen the US dollar almost touching the 1.1100 level against the Euro, but the Rand and some other emerging markets have been under pressure. We have also seen Gold on the front foot. Generally, in a risk-off rally, we see Gold and the US dollar move in tandem, but not this time. The Rand also took a slide today, and at one stage, the Rand was trading at R18.45 against the US dollar. Whether the weakness is down to position squaring before the long weekend can be a possibility, and the truth will only be revealed next week.

We could be in for some volatility, especially in the low liquidity conditions of the next few days, with the US releasing GDP and PCE data. This could mean that Rand could be at a very different level when we walk into the office either on Friday or next week Tuesday. We will not rule out a test of the top side of the range at R18.50, as risk sentiment is firmly against the Rand at the moment.

#ZAR #FinancialMarkets #FinancialPodcast #TreasuryONE #Recession

Andre Cilliers on Kaya FM 95.9 - Breakfast

Market trading sideways ahead of busy week

Currency markets traded sideways today with the data-filled week ahead of us. The Euro managed to breach the 1.10 level while the other majors are relatively flat for the day. The rand continues with the current range between R18.00 and R18.50, as local bond inflows remain lackluster. The US data could perhaps provide a pivotal view of future Fed Hikes, but the market is confident that the Fed will raise the interest rate by 25bps next week.

Commodity sector under pressure

Across the board, we have seen the commodity sector falling into a bear trap today, with Platinum and Palladium losing further ground during the day. Demand for PGMs like Platinum and Palladium is under pressure, with recession fears playing their part and the impact of central banks continuing to raise rates on the global economy. A similar story for WTI, which is trading at $74 per barrel, down 5% on the day, as global growth concerns and shrinking refining margins have been the key contributors. The outlook for diesel demand worldwide is also weakening, indicating weaker industrial activity and less consumer spending.

#ZAR #Markets #Commodities #InterestRate

Rand gains are still stubborn, and dollar data is still important

The rand is still struggling to manage a break below R18.00. Poor local infrastructure and concerns over South Africa’s “Russian Ties” keep investors from flooding into our already high-yielding bonds. This week’s higher-than-expected inflation print and the Fed talking a big game has led to economists excepting another 2 x 25bps by the MPC this year to accommodate inflation and the Fed hiking cycle. That said, we close the week slightly softer on the day, around R18.10, after another attempt at the R18.00 big figure yesterday. The dollar seems to still be favouring moves that are not beneficial for the greenback, with markets still concerned over the robustness of the US economy and what looks like an unavoidable recession in the world's largest economy. The dollar index is holding ground around 102.00, with the euro ending our local session at 1.0975.

#ZAR #TreasuryONE #CurrencyMarkets

Rand testing the bottom of the range

For the third time in a week, the Rand is testing the bottom of the R18.00/50 range, as the Rand enjoyed the fact that the US dollar slipped a little today. The question now becomes whether the Rand is forming a base here or has enough momentum to break below R18.00. With little in the way of significant data left for the week, we suspect that the Rand could struggle to make a meaningful break of R18.00.

We did see some weaker-than-expected employment numbers out of the US, with the initial jobless claims coming in weaker than expected. This could push the US dollar to 1.1000 against the Euro, but it seems that the market is in a little bit of a lull at the moment. We still have a couple of Fed speakers this week, which will give us some insight into the Fed's path forward.

#ZAR #TreasuryONE

Global inflation is still sticky

Although some countries have seen inflation starting to turn downward, as we can see from the chart, the bulk of the countries' worldwide inflation is still in an uptrend (blue line), with the inflation only down slightly, depicted by the white line. Our local inflation came out higher than expected today, and the UK's inflation printed above 10% for the 7th month in a row. Inflation seems to be like toothpaste, easy to get out but a little tricky to put back in. The higher inflation is continuing to place pressure on global liquidity. The problem is that central banks cannot push interest rates higher as this leads to other consequences like company insolvencies. So we will need to see how long interest will remain high before rate cuts come into play.

Rand trades better

The constrained global liquidity does not help an emerging market currency like the rand. Throw into the mix our own issues like load shedding, and we can see why the rand is one of the worst-performing currencies in 2023. For now, the rand seems stuck between R18.00 and R18.50, although we had a better day recovering from R18.30 early on to trade back around R18.10.

#Inflation #TreasuryONE #ZAR #Liquidity

Dollar gains fade, EM's stronger for the day

Recent dollar gains have faded today after Fed speakers' hawkish rhetoric has been the markets' main driver in the past few days. The dollar has lost ground across the board, and markets will likely turn their attention back to US Data out in the coming weeks. The rand has benefited from the softer dollar and improving risk sentiment, grinding out a 0.7% gain for the day and hovering below R18.20. Tomorrow's local CPI print is expected to show that inflation has eased to 6.9% year-on-year in March versus the 7% in February but could likely provide little volatility in the bigger scheme of things.

Positive Chinese data boosts Commodity price

The positive Chinese GDP and Production have sent metal prices on a rally today, with Palladium trading above $1,600 for the first time in some while in what is a 5% gain for the day. Platinum rose 3.3% as sentiment over the possibility of demand increasing out of the world's second-largest economy, while gold is still trading above $2,000.

Fed speakers not keen to pause on interest rate hikes

The dollar has been on the front foot for the day as Fed speakers are still talking about a big hiking cycle game. The market is fully pricing a 25bps hike at the May meeting and is only slightly pricing in more hikes after that. The 2Y treasury yields have rallied around 30bps in the last two days. The problem the Fed sits with is that the whole yield curve is almost now inverted, and given this shape, there is stubbornness in pricing a “Fed pivot.” Continuing to raise interest rates also increases the interest the Fed pays on reserve balances at the reserve repo auctions daily. This is helping larger banks like JP Morgan’s but is a problem for smaller banks that do not hold all these excess reserves. This also keeps pressure on the rising interest expense for the government. All in all, we expect that the May hike might be the last in the cycle.

Rand battles long other EM currencies

The rand was under pressure throughout the day as the dollar rallied. The rand in the short term feels stuck between R18.00 and R18.50 and would continue in this range until something meaningful happens in the market.

Dollar losing more ground

US PPI for March came out below expectations, increasing 2.7% vs. the 3% expectation. Apart from that, Jobless claims increased for a third week in a row, perhaps indicating that the labour market is not as solid as the Non-Farm Payroll number indicated on Friday. The data followed a week where CPI also printed below expectations, and the Fed warned that they are weary of the stability in the financial sector, causing the Euro to bounce to 1.1050 and the pound to 1.2530. The dollar index is struggling and dipped further, currently quoted at 100.95. We have seen equity markets gaining ground, bond yields dropping further, and Gold rallying to $2,045 after this afternoon’s data.

Rand is stronger but still off pace

The rand is starting to catch up to other EM’s, gaining 1.6% against the dollar on the day. The move has seen the rand close the gap between other EMs and us, but we are still lagging behind our peers in recent times. Local concerns could keep markets from flooding to buy our attractive yields, but for now, the rand put in a solid effort to trade back around the R18.10 handle.

US inflation

The inflation in the US was released, and now the question is will the Fed continue to hike interest rates? Headline inflation came out at 5% which is below the expected 5.2% in March. However, the Fed is keeping a firm eye on core inflation and services inflation. Looking at the graph one can see this remains stubbornly sticky. The market is still largely pricing in a 25bps hike at the May FOMC meeting. This will be the last inflation data print before the meeting.

Rand reaction

The local currency started the day off on the back foot and this is where it will end the day as well, firmly on the backfoot. After the release of the inflation data the rand quickly retraced some lost ground to R18.25 but after digesting the print all of the gains reversed again, to trade back at R18.40. The pressure on the rand does not look to subside anytime soon and a test of the high of the year around R18.70 certainly looks possible in the short term.

Rand recovers after long weekend

After Friday's US non-farm payroll number and a lack of liquidity in the market yesterday, we saw the Rand touching the R18.50 level. We expected the Rand to recover slightly as liquidity returned to the local market. That turned out to be the case as we saw the US dollar slipping against the Euro, and that bodes well for the Rand as the Rand clawed back some of its recent losses and is currently trading at R18.30 against the US dollar. The Rand has also lost significant ground against the Euro and the Pound, as the Euro is currently trading at R20.02, and the Pound is eyeing the R23.00 level at R22.80.

Data will drive the backend of the week

The Rand move could be halted as we have the US CPI number coming out tomorrow, with the market expecting the number to print at 5.2%. Any significant miss on this number could see a very volatile market. A higher print will surely be bad for EM's as this would force the hand of the Fed further, and a run into US dollars could be expected; however, the opposite is also true. We have seen risk sentiment being a little risk averse as Gold is also still trading above $2,000 per ounce. The much-spoken-about oil cut only interested markets initially, as oil has been trading around $84.00 per barrel for the past week.

Range-bound Rand

The rand has been looking comfortable between the R17.80 to R18.00 range, with the market moving in a very narrow range for most of the day. Late afternoon we have seen an increase in market movement, with the rand testing the R18.00 handle. The Greenback lost more ground against other majors early today but is grinding back late afternoon as markets perhaps look to close off positions ahead of the long weekend. ISM Non-Manufacturing data also came in below expectations after Manufacturing PMI dropped the ball on Monday.

Labour market showing cracks

The US has numerous measures which indicate the strength of the labour market, but over the past few weeks, we have seen job openings decline, and jobless claims increase. This afternoon the private sector ADP number came in well below expectations, which is generally a good indication for Non-Farm payrolls. On Friday, markets will be closed when the NFP numbers are released, which could create some market volatility. The expectation of the adding 240,000 jobs being added during March could be difficult, with recent data pointing to the number disappointing expectations as well.

#FinancialMarkets #USjobs

Weaker than expected U.S. data

U.S. job openings in February dropped to the lowest level in nearly two years, suggesting that the labour market was cooling. Along with the PMI number miss yesterday, data out of the U.S. is slipping a little. We will have to wait until Friday and the U.S. non-farm payroll number before we can see the state of a trend should the non-farm numbers disappoint.

The U.S. dollar slipped further against the Euro as the pair traded above 1.0950 after starting the day below 1.0900. Unfortunately, the Rand has not caught the wave of U.S. dollar weakness. The Rand is firmly stuck in the R17.80 - R18.00 range as the risk premium associated with the Rand currently hinders any significant move lower. With the U.S. dollar slipping and no reaction from the Rand, the GBP, and EUR crosses seem elevated.

Oil relatively mute despite yesterday's gains

With the weak U.S. data print, the tug of war in the oil price has reached another critical point. With the U.S. economy slowing and possibly heading for a recession, oil demand could also slow down. Despite yesterday's rally, we have seen the price stall, which is currently trading at $84.90 per barrel. Gold has enjoyed the slower U.S. economic data, with the yellow metal jumping 40 dollars on the release of the number, and is currently trading at $2,020 per ounce.

#OilPrice #Markets

US PMI data lower

Markets have been consolidating for most of the day, with the dollar creeping back losses it suffered. ISM Manufacturing PMI was expected to come in at 47.5, but the number came in lower at 46.3 as the US data continued to print lower. The rand tested R17.95 earlier as the dollar started to find some traction, but since the release of the ISM data, we have traded back to the R17.80 level. There is still some event risk later this week with payroll data in the US on Friday, Non-Manufacturing PMI on Wednesday, and Fed Speakers during the week, which could provide more volatility as the week drags along.

Brent Crude still up 5%

Brent Crude rose over 6% to $86 per barrel early this morning after the announcement by OPEC+ but has settled around the $85 mark for most of the day. Gold is up nearly 1%, with uncertainty ahead of this week leading to the safe-haven asset gaining ground.

#Markets #OilPrice #MarketsUpdate

US inflation continues to fall

Consumer prices rose less than expected in February, the latest monthly update of the Federal Reserve's preferred measure of inflation showed, the core PCE deflator. The annual rise in core PCE prices edged down to 4.6% from 4.7% in Jan, matching the lowest it has been since the end of 2021. Looking at the chart, CPI, PPI and PCE are trending down, although the pace lower is a bit slower than it was on the way up. This release can possibly prompt the Fed to stop its hiking cycle as the trend in inflation continues lower.

Rand trading stronger

The rand is still benefitting from the bigger surprise rate hike and continued to drift stronger during the day. The stronger move for the week has been significant as we started the week at R18.35, so we are 3.5% better off, so a bit of consolidation at these levels is to be expected.

#Inflation #ConsumerPrices

Slightly risk-on

The dollar has been trading under pressure for the day, with most currencies posting gains. The markets are starting to price rate cuts in the US more aggressively. This can possibly cause the US treasury yield curve continues to remain deeply inverted, an early indication that a US recession is looming. The market expects the Fed to not hike rates again and to start cutting interest rates in the second half of 2023. If the current liquidity crunch in the banking sector re-accelerates again and spills over it could spell danger. The rand and other emerging market currency is trading stronger on the back of this, but could all unwind rapidly if things go pear shape. We do have our MPC announcement tomorrow and the market is expecting a 25bps hike in interest rates.

#Treasury #Recession #InterestRate #EmergingMarkets