Closing the loop 14 March 2023

Closing the loop

Shireen Darmalingam

Market highlights:

The rand is stronger at R18.07/$ (R18.19/$*) today; it ranged between R18.04/$ and R18.33/$.
The currency is above its 50-day, 100-day and 200-day moving averages (R17.66/$, R17.53/$ and R17.28/$).
EM currencies are mixed today; MXN (+1.4%), HUF (+1.2) and CLP (+0.0%) are the biggest gainers; the RUB (-0.7%), KRW (-0.7%) and INR (-0.4%) are the biggest losers.

US CPI came in at 6.0% y/y in February (matching expectations) from a 6.4% y/y increase in January.
The main driver of the increase in CPI in February was shelter costs.
On a m/m basis CPI increased 0.4% in February after having increased by 0.5% in January.
Core CPI also moderated, albeit slightly in February to 5.5% y/y from 5.6% y/y in January.
The elevated CPI data, a sign of persistent inflationary pressures, adds to pressure on the Fed to continue hiking rates.
However, investors have since the collapse of SVB cut US rate expectations at the upcoming meeting from a 50 bps hike in the Fed funds rate next week, to a possible 25 bps increase or remaining on hold.

US NFIB small business optimism index increased in February to 90.9 from 90.3 in January, albeit still remaining below its long-term average of 98.
Despite the improvement, the index remains subdued as the short-term outlook is dampened by high inflation and concerns over an economic slowdown.

The UK ILO unemployment rate remained steady at 3.7% in the 3 months to January.
Payrolls rose by 98k in February, exceeding expectations of a 68k increase and from a 42k (revised down from 102k) increase in payrolls in January.
Wage growth moderated to 6.5% y/y in the three months to January from 6.7% y/y in December.
Today’s data suggests that the labour market isn’t cooling enough for the BOE to pause on rates at the next meeting.
The BOE previously signalled that an end to its hiking cycle is in sight.
Financial market developments around the recent collapse of SVB may be at the forefront of the upcoming MPC meeting and may support the case for a hold on rates.
The UK CPI data for February is also scheduled for release prior to the MPC decision.
If CPI surprises to the downside, it may be enough for the BOE to pause later this month.

Locally, mining production contracted less than expected in January by 1.9% y/y, following a 3.6% y/y decline in December.
Production of gold was up in January while platinum output declined.
On a m/m basis, mining output overshot expectations increasing by 4.4% in January after having increased by an upwardly revised 1.3% in December.
Manufacturing production also declined less than expected in January by 3.7% y/y after having decreased by 4.5% y/y in December.
Production was up by 1.1% m/m in January following a 0.5% m/m increase in December.
Retail sales for January, due out tomorrow, is likely to have declined by 2.0% y/y; this follows a 0.6% y/y fall in December.
Eskom: Stage 4 loadshedding continues until further notice.

Brent crude oil is at $80.020/bbl ($80.77/bbl*).
Gold price is at $1903/oz ($1909/oz*).
SA CDS is at 270bps (273bps*), Brazil 232bps (237bps*), Turkey 534bps (534bps*).
Yields: US 10yr 3.57% (3.57%*), German bund at 2.36% (2.25%*) and SA 10-year generic at 10.76% (10.78%*), SA’s R186 is at 8.37% (8.40%*).
The JSE ALSI is down by 0.9% today (-1.3%*).

* Denotes yesterday’s close.

Key events and data:

12h00: Eurozone industrial production (January)
13h00: SA retail sales (January)
13h00: MBA mortgage applications (10 March)
14h30: UK Chancellor presents Spring Budget to Parliament
14h30: US PPI (February), Empire manufacturing (February), retail sales (February)
16h00: US business inventories (January), NAHB housing market index (March)

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