Closing the loop 17 June 2022

Closing the loop

Shireen Darmalingam

Market highlights:

The rand is weaker at R15.97/$ (R15.95/$*) today; it ranged between R15.85/$ and R16.05/$.
The currency is above its 50-day, 100-day and 200-day moving averages (R15.63/$, R15.33/$ and R15.35/$).
EM currencies are largely down today; the BRL (-1.7%), HUF (-1.2%) and CLP (-1.0%) are the biggest losers; the RUB gained 2.2% today.

Eurozone inflation for May (final estimate) registered in line with expectations coming in at 8.1% y/y from 7.4% y/y in April.
On a m/m basis, CPI increased to 0.8% in May from 0.6% in April.
Core CPI was also up in May to 3.8% y/y from 3.5% y/y in April.
The Russia-Ukraine war and global supply chain disruptions have pushed up food prices and household energy bills.
Services inflation also continued to climb in May.
The increase in underlying inflation adds to the ECB’s case for a more aggressive rate hiking cycle.

ECB Governing Council member Klaas Knot noted that a few 50 bps increases in rates could be needed if inflation worsens in the coming months.
Knot supports a 50 bps increase in rates at the September MPC meeting; still, he does not expect rates to reach 2% before early 2023.
The ECB has previously outlined a “sustained” cycle of rate increases in the months ahead but has not specified the magnitude of the increases.

Following this week’s 25 bps increase in rates, the BOE looks set to hike by 50 bps at its next meeting as it steps up its inflation-fighting measures.
Policymakers noted yesterday that the bank would have to move “forcefully” in the future if needed.

US Fed Chair Jerome Powell commented today that the Fed’s commitment to price stability contributes to widespread confidence in the dollar.
Powell however noted that rapid changes in the global monetary system may affect the future international role of the USD.
The dollar extended its gains today.

Locally, we look to the SARB’s leading indicator for April next week; the index increased to 128 pts in March from 127.2 pts in February.
The May CPI is also on the cards next week; CPI is expected to have breached the upper limit of the target band rising to 6.2% y/y from April’s increase of 5.9% y/y.
On a m/m basis, CPI is expected to have increased by 0.3% in May from an increase of 0.6% in April.

Brent crude oil is at $115.92/bbl ($119.81/bbl*).
Gold price is at $1840/oz ($1850/oz*).
SA CDS is at 286bps (290bps*), Brazil 280bps (279bps*), Turkey 827bps (832bps*).
Yields: US 10yr at 3.25% (3.19%*), German bund at 1.70% (1.71%*) and SA 10-year generic at 10.70% (10.70%**), SA’s R186 is at 8.66% (8.87%**).
The JSE ALSI is down by 2.8% today (+2.8%**).

* Denotes yesterday’s close.

** Denotes Wednesday’s close.

Key events and data:

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