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Closing the loop 22 May 2023

Closing the loop

Shireen Darmalingam

Market highlights:

  • The rand is stronger at R19.26/$ (R19.45/$*) today; it ranged between R19.20/$ and R19.50/$.
  • The currency is above its 50-day, 100-day and 200-day moving averages (R18.41/$, R18.03/$ and R17.77/$).
  • EM currencies are mixed today; the ZAR (+1.0%), PLN (+0.8%) and KRW (+0.6%) were the biggest gainers; the MXN (-0.7%), ARS (-0.7%) and CLP (-0.5%) were the biggest losers. 
  • The rand gained 1.0% today ahead of the SARB’s MPC meeting later this week.
  • While it has gained ground, it is still on the backfoot having been impacted by intense loadshedding and the bleak outlook for winter.
  • The Finance Minister also flagged the likely fiscal undershoot amid lower commodity prices, weaker growth, and wage bill overspending last week.
  • The SARB will thus keep a close eye on developments in the lead up to its interest rate decision on Thursday.
  • We expect the SARB to hike the repo rate by 50 bps to 8.25% this week on the back of this renewed currency weakness since the previous MPC meeting which has aggravated the upside risk to inflation.
  • The SARB’s leading indicator for March is due out tomorrow; the index slipped to 120.1 in February, from 120.9 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.
  • Minneapolis Fed President Neel Kashkari commented today that it is a close call whether to raise rates or pause on the hiking cycle at the June’s FOMC meeting.
  • Kashkari noted that the FOMC may need to take rates above 6%.
  • He indicated that it is important to not signal that the bank is done hiking rates.
  • This comes as he points out that if the bank were to pause hiking rates in June, it does not necessarily mean that the bank is not done with its tightening cycle.
  • Kashkari’s comments come ahead of the FOMC meeting minutes scheduled for release on Wednesday.
  • The minutes may shed light on whether the committee agrees that 5.25% constitutes the peak, or that rates are sufficiently restrictive.
  • St. Louis Fed President James Bullard expects two more rate hikes this year and argues that moving sooner on these rate hikes remains the best strategy.
  • Fed policymakers Thomas Barkin and Raphael Bostic are due to comment on the economy and monetary policy later today.
  • President Joe Biden and House Speaker Kevin McCarthy are scheduled to resume discussions around the debt ceiling today. 
  • US new home sales data for April, due out tomorrow, likely moderated, after surging in March. 
  • Nevertheless, sales volumes are likely to remain well above the trough from July 2022.
  • New research by Interactive Investor found that purchasing power in the UK has fallen by GBP153bn over the past two years or about GBP5,455 per household.
  • The cost of living crisis has been driven by higher energy and food costs driving up inflation into double digits.
  • UK inflation for April, scheduled for release on Wednesday, is finally expected at single-digits. 
  • CPI is expected at 8.2% y/y in April, from an increase of 10.1% y/y in March.
  • The oil price is up by 0.1% today, and down by 11.9% in the year-to-date.
  • The gold price is down by 0.3% today, and up by 8.1% in the year-to-date.
  • Brent crude oil is at $75.67/bbl ($75.58/bbl*).
  • Gold price is at $1971/oz ($1977/oz*). 
  • SA CDS is at 315bps (319bps*), Brazil 217bps (214bps*), Turkey 690bps (663bps*).
  • Yields: US 10yr 3.68% (3.67%*), German bund at 2.45% (2.42%*) and SA 10-year generic at 12.06% (11.98%*), SA’s R2030 is at 11.22% (11.16%*).
  • The JSE ALSI is down by 0.2% today (+0.7%*).

* Denotes Friday’s close. 

Key events and data:

  • 02h30: Japan Jibun Bank manufacturing, services and composite PMI (May)
  • 08h00: Japan machine tool orders (April – final)
  • 09h00: SA SARB leading indicator (March)
  • 10h00: Eurozone HCOB manufacturing, services and composite PMI (May), current account (March)
  • 10h30: UK S&P Global/CIPS manufacturing, services and composite PMI (May P)
  • 15h45: US S&P Global manufacturing, services and composite PMI (May)
  • 16h00: US new home sales (April)

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