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In the loop 21 September 2022

In the loop

Shireen Darmalingam

What you should know this morning:

  • The rand is marginally stronger this morning, at R17.70/$, after closing weaker yesterday (R17.71/$*).
  • EM currencies were mixed yesterday; the BRL (+0.5%) and KRW (+0.3%) were the biggest gainers; the CLP (-1.1%), RUB (-0.9%) and CZK (-0.8%) were the biggest losers.
  • Asian equity markets the Nikkei, Hang Seng and Shanghai Composite are down.
  • The spotlight is on the US FOMC interest rate decision later today.
  • The higher-than-expected reading for US CPI for August has cemented the case for a third straight 75 bps rate increase.
  • A 100 bps increase, however, cannot be ruled out.
  • Fed Chair Jerome Powell will likely signal that the FOMC is committed to keeping rates higher for longer.
  • Investors will keep an eye on Powell’s comments about the possibility of an economic downturn.
  • Investors are also looking beyond the inflation data for any signs that could see the bank scaling back the magnitude of rate increases.
  • ECB President Christine Lagarde commented yesterday that borrowing costs will likely rise more in the months ahead.
  • This is expected even after policymakers front-loaded initial moves. 
  • Lagarde noted that the current tightening policy is “the fastest change in rates in our history”.
  • Policymakers are debating their next move in October following the Fed’s 75 bps increases. 
  • Lagarde, however, is concerned about the level of the rate increases that would be appropriate as rising energy costs threaten to tip Europe into a recession.
  • Lagarde also reiterated that policy moves are data-dependent and that the ECB would make decisions on a meeting-by-meeting basis.
  • Brazil’s central bank has kept its Selic rate unchanged, at 13.75%, as expected, despite rising inflation.
  • Locally, the August CPI print is scheduled for release today; CPI is expected at 7.6% y/y, from 7.8% y/y in July.
  • On a m/m basis, CPI is expected to have increased by 0.1% in August, after having increased by 1.5% in July.
  • Core CPI is expected at 4.6% y/y in August, the same as in July.
  • Eskom continues with Stage 5 loadshedding today.
  • Brent crude oil is up this morning, and up by 16.6% year-to-date.
  • The gold price is down this morning, and down by 9.1% year-to-date.
  • Brent crude oil is currently at $90.70/bbl; ($90.62/bbl*).
  • Gold is at $1662/oz ($1664/oz*).
  • SA CDS 294bps*, Brazil 263bps* and Turkey 750bps*.
  • Yields: US 10yr at 3.56%*, German bund at 1.92%* and SA 10-year generic at 11.01%*, SA’s R186 at 9.11%*.

* Denotes yesterday’s close. 

 Key events and data: 

  • 10h00: SA CPI (August)
  • 13h00: US MBA mortgage applications (16 September)
  • 16h00: US existing home sales (August)
  • 20h00: US FOMC interest rate decision – 75 bps hike expected

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