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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.
  • The oil price is down by 4.1% today, and up by 10.7% in the year-to-date.   
  • The gold price is down by 0.3% today, and down by 4.1% in the year-to-date.
  • 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:

  • On Monday: 03h15: China PBoC interest rate decision – no change expected

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