Closing the loop 23 March 2023

Closing the loop

Shireen Darmalingam

Market highlights:

The rand is stronger at R18.10/$ (R18.34/$*) today; it ranged between R18.06/$ and R18.34/$.
The currency is above its 50-day, 100-day and 200-day moving averages (R17.86/$, R17.55/$ and R17.37/$).
EM currencies are mixed today; KRW (+2.3%), HUF (+1.9%) and ZAR (+1.3%) are the biggest gainers; the BRL (-0.5%), ARS (-0.2%) and MXN (-0.1%) are the biggest losers.

The BOE hiked its benchmark interest rate by 25 bps to 4.25% as expected, despite the current global financial challenges, and follows the US Fed in focusing on inflation.
Policymakers voted 7-2 for the 25 bps rate hike, brushing aside concerns about the outlook for the banking sector.
The BOE expects the UK economy to avoid a recession this year, although it expects inflation to remain a risk.
The central bank thus left the door open for further interest rate increases if inflation risks persist.
The BOE policy committee noted that UK banks are “resilient” and “well placed to continue supporting the economy in a wide range of economic scenarios, including in a period of higher interest rates.”

The Swiss National Bank (SNB) hiked interest rates by 50 bps to 1.5% today and signalled that more interest rate increases are on the cards as the bank fights inflation.
The SNB expects inflation to average 2.6% in 2023 and to moderate to 2% in 2024 and 2025.
The bank declared that measures it took to support Credit Suisse had “put a halt to the crisis.”
The Turkish Central Bank kept its benchmark interest rate unchanged at 8.5%.
The policy committee noted that the benchmark rate was at an “adequate” level following the 50 bps cut in February.

Several countries’ PMI data (manufacturing, services and composite indices) are scheduled for release tomorrow.
The Eurozone manufacturing PMI is likely to have remained in contractionary territory in March; the services index is likely to have slipped, albeit remaining above the 50-benchmark line.
The composite index is expected to have remained steady at 52 in March.
The UK services PMI for March is likely to have slipped to 53 from 53.5 in February; the manufacturing PMI is expected to have remained in contraction.
The US PMIs are both expected to have deteriorated in March with the manufacturing index remaining in contractionary territory.

Locally, the Q1:23 BER consumer confidence deteriorated to -23 from -8 in Q4:22.
The deterioration in confidence came on the back of the electricity crisis and cost-of-living concerns.
The BER noted that elevated food prices, higher interest rates and a weaker rand exchange rate are weighing on confidence.
The household financial prospects sub-index fell to -1 in Q1:23 from 13 in Q4:22; the sub-index measuring the appropriate time to buy durable goods also declined in Q1:23 to -34 from -17 in Q4:22.
The economic outlook index also deteriorated during the quarter, to -34 in Q1:23 from -19 in Q4:22.
Confidence levels amongst all income categories fell in the first quarter with confidence among high-income households falling the most.
This suggests that the wealthier consumers are particularly concerned about the prospects for the economy.

Brent crude oil is at $76.86/bbl ($76.69/bbl*).
Gold price is at $1982/oz ($1946/oz*).
SA CDS is at 297bps (295bps*), Brazil 246bps (246bps*), Turkey 542bps (546bps*).
Yields: US 10yr 3.47% (3.43%*), German bund at 2.25% (2.32%*) and SA 10-year generic at 10.75% (10.77%*), SA’s R186 is at 8.36% (8.37%*).
The JSE ALSI is up by 0.5% today (+1.3%*).

* Denotes yesterday’s close.

Key events and data:

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