Closing the loop 18 November 2022

Closing the loop

Shireen Darmalingam

Market highlights:

The rand is stronger at R17.28/$ (R17.66/$*) today; it ranged between R17.24/$ and R17.41/$.
The currency is below its 50-day and 100-day moving averages (R17.86/$ and R17.36/$) and above its 200-day moving average (R16.38/$).
EM currencies are mixed today; the HUF (+0.9%), BRL (+0.8%) and CNY (+0.5%) are the biggest gainers; the COP (-0.5%), RUB (-0.5%) and CLP (-0.3%) are the biggest losers.

UK retail sales, including autos, overshot expectations increasing by 0.6% m/m in October after having fallen by 1.5% m/m in September.
Consumer spending is likely to remain under pressure in the coming months given the cost-of-living crisis.
The costs of goods and services are surging faster than wages, leaving workers with tighter pockets.
The Office for Budget Responsibility (OBR) expects real incomes to shrink by 7% over the next 2 years.

While many investors agree that the Fed will hike rates at its next FOMC meeting in December, they are at odds with how high the Fed will take rates.
They are also in disagreement whether the Fed will be cutting rates by the end of 2023.
The Fed is trying to strike a balance with taming inflation while the risks of recession and rising unemployment become bigger concerns.
Fed Chair Jerome Powell and other policymakers have signalled that the bank will maintain tight monetary policy to return inflation to their 2% target.

ECB President Christine Lagarde commented today that the central bank needs to use other policy tools to fight high inflation.
Lagarde also made a commitment to start shrinking its EUR5 trillion bond portfolio in 2023.
She noted that while interest rates are the most effective tool for shaping the bank’s policy stance, the balance sheet needs to be “normalised in a measured and predictable way”.

Locally, it was a quiet day as far as data releases were concerned.
S&P is scheduled to review SA’s sovereign credit rating later this evening.
There is a probability of S&P upgrading SA’s credit rating, given the indications of government’s commitment to fiscal consolidation.
However, downside risks to the global economic outlook, alongside high-probability spending risks not incorporated in the MTBPS forecasts, might justify a delay in any rating action.
Eskom: Stage 4 loadshedding continues until further notice.

Brent crude oil is at $86.08/bbl ($89.78/bbl*).
Gold price is at $1754/oz ($1760/oz*).
SA CDS is at 261bps (270bps*), Brazil 255bps (274bps*), Turkey 591bps (609bps*).
Yields: US 10yr at 3.78% (3.76%*), German bund at 2.04% (2.02%*) and SA 10-year generic at 10.95% (10.98%*), SA’s R186 is at 8.77% (8.80%*).
The JSE ALSI is up by 0.9% today (-0.6%*).

* Denotes yesterday’s close.

Key events and data:

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