Closing the loop 04 August 2022

Closing the loop

Shireen Darmalingam

Market highlights:

The rand is stronger at R16.72/$ (R16.81/$*) today; it ranged between R16.70/$ and R16.82/$.
The currency is above its 50-day, 100-day and 200-day moving averages (R16.30/$, R15.81/$ and R15.65/$).
EM currencies are mixed today; the MXN (+0.8%), THB (+0.7%) and CZK (+0.6%) are the biggest gainers; the RUB (-1.1%), INR (-0.4%) and ARS (-0.2%) are the biggest losers.

In the Eurozone, the ECB’s Economic Bulletin noted that it was appropriate for the bank to hike rates by a larger increment than was indicated at its previous meeting.
This was based on the committee’s updated assessment of inflation risks and the reinforced support provided by the Transmission Protection Instrument (TPI) for the effective transmission of monetary policy.
The bank is committed to strengthening the anchoring of inflation expectations.
It reiterated its intension of ensuring that demand conditions adjust to deliver the central bank’s inflation target in the medium term.
The ECB also noted that further rate increases would be appropriate on its policy rate normalisation path.

The BOE hiked its benchmark interest rate by 50 bps, the most since 1995, to 1.75% as expected.
The bank warned that the UK economy is heading for 5 quarters of recession as it battles with soaring inflation.
The recession is expected in Q4:22 and is expected to continue through next year.
The bank lifted its inflation forecasts and now expects CPI to peak at 13.3% in October; prices are expected to remain elevated in 2023.
The BOE also outlined its plans to reduce government bond holdings.

The US July jobs report is due out tomorrow; non-farm payrolls are expected to have increased by 250k in July, following an increase of 372k in June.
The unemployment rate is expected to have remained unchanged near a five-decade low of 3.6% in July.

The Reserve Bank of India meets tomorrow and is expected to hike the repo rate by 25 bps to 5.15%.
This follows two larger hikes of 40 bps and 50 bps previously.
The bank is likely to revert to 25 bps at this meeting as fiscal steps taken are reining in food and fuel prices and have helped to cool overall inflation.
The RBI is likely to continue hiking the repo rate this year; the repo rate is expected to end the year at 5.75%.

Locally, national loadshedding has been pushed to Stage 4 from 4pm to midnight.
Eskom will continue with Stage 2 loadshedding tomorrow.
Electricity production fell by 4.0% y/y in June after declining by 4.3% y/y in May.
Electricity consumption was also down in June by 1.1% y/y following May’s decline of 2.5% y/y.
The SARB’s gross and net reserves for July are due out tomorrow.

Brent crude oil is at $95.10/bbl ($96.78/bbl*).
Gold price is at $1785/oz ($1759/oz*).
SA CDS is at 270bps (285bps*), Brazil 270bps (283bps*), Turkey 734bps (773bps*).
Yields: US 10yr at 2.68% (2.70%*), German bund at 0.81% (0.787%*) and SA 10-year generic at 10.68% (10.80%*), SA’s R186 is at 8.83% (8.99%*).
The JSE ALSI is up by 0.5% today (+0.9%*).

* Denotes yesterday’s close.

Key events and data:

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