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Closing the loop 23 May 2023

Closing the loop

Shireen Darmalingam

Market highlights:

  • The rand is stronger at R19.17/$ (R19.24/$*) today; it ranged between R19.16/$ and R19.32/$.
  • The currency is above its 50-day, 100-day and 200-day moving averages (R18.43/$, R18.05/$ and R17.78/$).
  • EM currencies are mixed today; the KRW (+0.4%), ZAR (+0.4%) and RUB (+0.3%) were the biggest gainers; the THB (-0.7%), HUF (-0.7%) and MYR (-0.5%) were the biggest losers. 
  • The rand is steady ahead of the April CPI data out tomorrow and the SARB’s interest rate decision on Thursday.
  • This follows the recovery yesterday after S&P ratings agency maintained the country’s sovereign rating and outlook over the weekend and on expectations that the SARB will hike the repo rate by 50 bps on Thursday.
  • Investors will therefore keep a close eye the April CPI data, out tomorrow, to assess the success of the SARB’s aggressive rate hiking cycle in trying to curb inflation.
  • The April CPI is expected at 7.0% y/y, from 7.1% y/y in March.
  • On a m/m basis, CPI is likely to have increased by 0.5% m/m in April after having increased by 1.0% m/m in March.
  • Core CPI is likely to have increased by 5.4% y/y in April from 5.2% y/y in March.
  • The SARB leading indicator for March slipped further to 117.8 from an upwardly revised 120.2 in February.
  • The largest detractors were decreases in South Africa’s export commodity price index denominated in USD and the six-months smoothed growth rate in the real M1 money supply.
  • The positive contributors were an increase in the number of residential building plans approved and an acceleration in the composite leading business cycle indicator for South Africa’s major trading-partner countries.
  • The coincident indicator, which measures current economic conditions, slipped to 96.1 in February from 96.4 in January.
  • The lagging indicator decreased to 101.4 in February from 103.0 in January.
  • Eskom: Stage 5 loadshedding continues until 5am tomorrow; Stage 3 loadshedding will resume then.
  • Eskom continues to warn that the current schedule could change at short notice.
  • The Eurozone S&P Global composite PMI slipped more than expected to 53.3 in April from 54.1 in March.
  • The deterioration comes on the back of the further decline in the manufacturing PMI, which fell to 44.6 in April from 45.8 in March.
  • The services PMI also slipped in April but remained in expansionary territory; the services PMI came in 55.9 in April from 56.2 in March.
  • The UK composite PMI also decreased in April, albeit remained in expansionary territory, to 53.9 from 54.9 in March.
  • The fall was driven by decreased activity in the manufacturing sector; the manufacturing PMI fell to 46.9 in April from 47.8 in March.
  • The services PMI also remained in expansionary territory with the index at 55.1 in April from 55.9 in March.
  • The data suggests that companies are still relatively confident about the outlook for the economy despite higher interest rates and inflation.
  • The UK’s BOE Governor Andrew Bailey commented today that inflation in the UK had been on the rise even prior to the Russia-Ukraine war.
  • Chief Economist Huw Pill noted that policymakers’ modelling needed to change given the “unexpected persistence of inflation in the aftermath of a series of shocks, from Covid to the energy price crisis”.
  • The oil price is up by 1.4% today, and down by 10.3% in the year-to-date.
  • The gold price is down by 0.3% today, and up by 8.0% in the year-to-date.
  • Brent crude oil is at $77.06/bbl ($75.99/bbl*).
  • Gold price is at $1969/oz ($1974/oz*). 
  • SA CDS is at 320bps (316bps*), Brazil 215bps (216bps*), Turkey 699bps (695bps*).
  • Yields: US 10yr 3.73% (3.71%*), German bund at 2.48% (2.45%*) and SA 10-year generic at 12.08% (12.06%*), SA’s R2030 is at 11.23% (11.22%*).
  • The JSE ALSI is down by 1.3% today (-0.3%*).

* Denotes yesterday’s close. 

Key events and data:

  • 08h00: Japan machine tool orders (April – final)
  • 08h00: UK CPI, PPI, RPI (April)
  • 10h00: SA CPI (April)
  • 10h30: UK house price index (April)
  • 13h00: US MBA mortgage applications (19 May)
  • 20h00: US FOMC meeting minutes (3 May)

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