Closing the loop

Market highlights:

• The rand is weaker at R19.68/$ (R19.25/$*) today; it ranged between R19.20/$ and R19.76/$.
• The currency is above its 50-day, 100-day and 200-day moving averages (R18.47/$, R18.10/$ and R17.81/$).
• EM currencies are mixed today; the RUB (+0.5%) and TWD (+0.1%) were the biggest gainers; the ZAR (-2.3%), BRL (-1.0%) and MYR (-0.7%) were the biggest losers. 

• The rand weakened ahead of the SARB’s interest rate decision and further following the announcement of an aggressive hike in the repo rate.
• The SARB hiked the repo rate by 50 bps to 8.25%; the decision was unanimous.
• The bank expects CPI to average 6.2% (previously 6.0%) in 2023 while CPI in 2024 is expected at 5.1% (from 4.9%) and 4.5% (previously 4.5%) in 2025.
• The core inflation forecast is up in 2023 (5.3%; previously 5.1%), and higher in 2024 at 5.0% (4.8%) and in 2025 at 4.6% (4.5%).
• The bank assesses the risks to inflation to be to the upside; the global oil price market is expected to remain tight with upside risks to prices.
• Electricity prices and other administered prices continue to present clear short and medium-term risks.
• Given sticky petrol and food prices, there are still considerable risks attached to the forecast for average salaries.
• Loadshedding may additionally have broader price effects on the cost of doing business and the overall cost of living, in particular as diesel consumption increases.
• Headline inflation is expected to revert to the mid-point of the target range by Q2:25.
• The GDP growth forecast is revised up slightly to 0.3% (previously 0.2%) in 2023; 1.0% (previously 1.0%) is pencilled in for 2024 and 1.1% (previously 1.1%) for 2025.
• Energy and logistical constraints continue to remain binding on the SA growth outlook, which limits economic activity and increases costs.
• Loadshedding alone is expected to deduct 2 percentage points from growth this year.
• Downside risks to growth emanate from the lower terms of trade and modest global growth.
• The risks to the medium-term growth outlook are assessed to be balanced; negative global shocks and loadshedding remain headwinds to growth.
• The output gap is around zero over the next three years; this implies very modest positive pressure on inflation from the forecasted growth rate.
• SA’s financing needs are, however, expected to rise.
• Currency markets are expected to remain volatile and sensitive to idiosyncratic risks; further currency weakness appears likely.
• In this uncertain environment future policy changes are likely to be data dependent and sensitive to the balance of risks to the outlook.
• The MPC will continue to look through temporary shocks and concentrate on potential second-round effects and the risk of de-anchoring inflation expectations.

• PPI inflation moderated more than expected in April to 8.6% y/y from 10.6% y/y in March.
• On a m/m basis, PPI also came in lower than expected at 0% in April after having increased by 1.0% m/m in March.
• 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 Central Bank of Turkey kept its one-week repo rate unchanged at 8.5% today.
• The central bank is, however, expected to continue using tighter bank regulation and currency market interventions in the short term to minimise the impact of loose policy on the TRY.

• US GDP growth increased more than expected in Q1:23 by 1.3% q/q (previous estimate: 1.1% q/q) after having increased by 2.6% q/q in Q4:22.
• The increase was largely driven by an upwardly revised increase in consumer spending as well as an increase in exports, government spending and non-residential fixed investment.
• This was partly offset by decreases in private inventory investment and residential fixed investment.

• The oil price is down by 2.6% today, and down by 11.2% in the year-to-date.
• The gold price is down by 0.6% today, and up by 6.9% in the year-to-date.

• Brent crude oil is at $76.25/bbl ($78.36/bbl*).
• Gold price is at $1948/oz 1959/oz*). 
• SA CDS is at 315bps (320bps*), Brazil 214bps (217bps*), Turkey 672bps (672bps*).
• Yields: US 10yr 3.77% (3.74%*), German bund at 2.48% (2.47%*) and SA 10-year generic at 11.98% (11.91%*), SA’s R2030 is at 11.08% (11.02%*).
• The JSE ALSI is up by 0.9% today (-1.5%*).

* Denotes yesterday’s close. 

Key events and data:

• 08h00: UK retail sales (April)
• 14h30: US personal income and spending (April), PCE deflator (April), durable goods orders (April), advance goods trade balance (April)
• 16h00: US University of Michigan sentiment, 1 yr and 5-10 yr inflation expectations (May – final)

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