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Closing the loop 22 September 2022

Closing the loop

Shireen Darmalingam

Market highlights:

  • The rand is stronger at R17.57/$ (R17.69/$*) today; it ranged between R17.44/$ and R17.80/$.
  • The currency is above its 50-day, 100-day and 200-day moving averages (R16.98/$, R16.51/$ and R15.89/$).
  • EM currencies are mixed today; the RUB (+2.9%), ZAR (+0.7%) and COP (+0.5%) are the biggest gainers; the CLP (-1.3%), KRW (-1.2%) and INR (-1.1%) are the biggest losers.
  • Several central banks hiked policy rates today.
  • The Swiss National Bank hiked its benchmark interest rate by 75 bps to 0.5% from -0.25%.
  • The bank noted that more interest rate increases are likely in the coming months.
  • The Norges Bank lifted rates by 50 bps to 2.25% as expected; the bank, however, noted that hikes may end soon.
  • This comes as policymakers see the economy responding to their fight against rising inflation.
  • The BOE lifted its benchmark interest rate by 50 bps today to 2.25%.
  • The committee, however, was split on the decision with 3 members preferring a 75 bps hike, 1 preferred a 25 bps hike while 5 voted for a 50 bps hike.
  • Today’s rate rise marks the 7th consecutive rate increase since December last year.
  • The BOE lowered its inflation forecast for this year to less than 11%, from 13.3% previously.
  • The committee noted that it would “respond forcefully as necessary” should price pressures become more persistent.
  • In contrast to the rate hikes by other central banks today, the Turkish central bank cut its one-week repo rate by 100 bps to 12%.
  • The cut comes despite rising inflation, which is currently at a 24-year high of 80.2%.
  • The bank cited the loss of momentum in economic activity as a reason for the rate cut.
  • Locally, the SARB hiked the repo rate by 75 bps to 6.25%; 3 members preferred a 75 bps increase while 2 members preferred a 100 bps increase.
  • The bank expects CPI to average 6.5% (previously 6.5%) in 2022 while CPI in 2023 is expected at 5.3% (from 5.7%) and 4.6% (previously 4.7%) in 2024.
  • Lower food, fuel and core inflation are the main drivers of the revision to the CPI forecasts; the bank sees fuel and food inflation moderating in 2023.
  • The bank, however, assesses the risks to inflation to be to the upside; this comes on the back of the Russia-Ukraine war which is having an adverse impact on global prices.
  • GDP is pencilled in at 1.9% (previously 2.0%) in 2022; 1.4% (previously 1.3%) is pencilled in for 2023 and 1.7% (previously 1.5%) for 2024.
  • Public sector investment growth remains weak while private sector investment has strengthened on the back of the recovery.
  • Household spending remains supportive of growth but is likely to soften next year.
  • The risks to the growth outlook are assessed to the balanced; negative global shocks and loadshedding remain headwinds to growth.
  • The output gap is broadly unchanged and is still expected to turn positive in Q3:23.
  • In this uncertain environment future policy changes are likely to be data dependent and sensitive to the balance of risks to the outlook.
  • The MPC will continue to look through temporary shocks and concentrate on potential second-round effects and the risk of de-anchoring inflation expectations.
  • The governor noted that the QPM model remains a broad policy guide which changes from one meeting to the next in response to new data and risks.
  • The bank further noted that economic and financial conditions are expected to remain more volatile for the foreseeable future. 
  • Eskom continues with Stage 5 loadshedding this evening.
  • The oil price is up by 1.0% today, and up by 16.8% in the year-to-date.   
  • The gold price is up by 0.5% today, and down by 8.5% in the year-to-date.
  • Brent crude oil is at $90.79/bbl ($89.83/bbl*).
  • Gold price is at $1673/oz ($1665/oz*). 
  • SA CDS is at 292bps (289bps*), Brazil 263bps (261bps*), Turkey 753bps (739bps*).
  • Yields: US 10yr at 3.64% (3.52%*), German bund at 1.94% (1.89%*) and SA 10-year generic at 10.93% (10.97%*), SA’s R186 is at 9.06% (9.08%*).
  • The JSE ALSI is down by 1.3% today (-0.6%*).

* Denotes yesterday’s close.

 Key events and data:

  • 01h01: UK GfK consumer confidence (September)
  • 10h00: Eurozone S&P Global manufacturing, services and composite PMI (September)
  • 10h30: UK S&P Global manufacturing, services and composite PMI (September)
  • 15h45: US S&P Global manufacturing, services and composite PMI (September)

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