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Closing the loop 24 May 2023

Closing the loop

Shireen Darmalingam

Market highlights:

  • The rand is stronger at R19.18/$ (R19.20/$*) today; it ranged between R19.13/$ and R19.31/$.
  • The currency is above its 50-day, 100-day and 200-day moving averages (R18.45/$, R18.07/$ and R17.79/$).
  • EM currencies are mixed today; the COP (+0.9%), MXN (+0.8%) and HUF (+0.7%) were the biggest gainers; the CLP (-0.9%), MYR (-0.5%) and KRW (-0.4%) were the biggest losers. 
  • The rand remains steady ahead of the SARB’s interest rate decision tomorrow and on the back of the better-than-expected inflation print.
  • CPI came in lower than expected in April at 6.8% y/y (an 11-month low) from 7.1% y/y in March.
  • On a m/m basis, CPI increased by 0.4% in April after having increased by 1.0% m/m in March.
  • Core CPI also rose less than expected in April to 5.3% y/y in April from 5.2% y/y in March.
  • We expect CPI to average 6.1% in 2023, compared with the SARB’s 6.0% forecast at the time of the March MPC meeting.
  • Today’s data is unlikely to sway the SARB from hiking by another aggressive 50 bps tomorrow.
  • Given the still-elevated inflation and a weaker rand since the last MPC meeting, we expect the SARB to hike the  repo rate to 8.25%.
  • PPI for April, also due out tomorrow, is expected at 9.0% y/y, from 10.6% y/y in March. 
  • The US signalled today that the current dispute regarding the allegations that SA supplied weapons to Russia to assist in the war will be addressed privately to preserve its relationship with SA.
  • Officials have indicated that they are waiting for results of an investigation launched by President Ramaphosa on the matter.
  • Eskom: Public Enterprises Minister Pravin Gordhan commented today that the Eskom Board is likely to announce a new CEO within a month to replace acting CEO Caleb Cassim.
  • Minister Gordhan also commented that high levels of loadshedding are likely to persist beyond 2023.
  • Stage 5 loadshedding continues until 5am tomorrow; Stage 4 loadshedding will resume then.
  • Eskom continues to warn that the current schedule could change at short notice.
  • The markets await the minutes of the US FOMC meeting (2-3 May) later today.
  • UK CPI overshot expectations in April coming in at 8.7% y/y (expected: 8.2% y/y) from 10.1% y/y in March.
  • The moderation was driven largely by the base effect associated with a massive increase in household energy bills in April 2022.
  • Food inflation also moderated less than expected, which limited the moderation in headline CPI.
  • The data suggests that while inflation has moderated to single-digits, it remains stubbornly high.
  • And will likely keep the BOE on course to hike rates again in June.
  • The oil price is up by 1.5% today, and down by 9.2% in the year-to-date.
  • The gold price is down by 0.2% today, and up by 8.0% in the year-to-date.
  • Brent crude oil is at $78.02/bbl ($76.84/bbl*).
  • Gold price is at $1970/oz ($1973/oz*). 
  • SA CDS is at 322bps (320bps*), Brazil 216bps (214bps*), Turkey 683bps (697bps*).
  • Yields: US 10yr 3.68% (3.69%*), German bund at 2.44% (2.46%*) and SA 10-year generic at 11.95% (12.07%*), SA’s R2030 is at 11.06% (11.22%*).
  • The JSE ALSI is down by 1.4% today (-1.6%*).

* Denotes yesterday’s close. 

Key events and data:

  • 11h30: SA PPI (April)
  • 14h30: US initial jobless claims (20 May), GDP (Q1:23)
  • 15h00: SA SARB MPC interest rate decision – 50 bps rate hike expected

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