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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.
  • The oil price is down by 1.6% today, and up by 22.3% in the year-to-date.   
  • The gold price is up by 1.4% today, and down by 2.4% in the year-to-date.
  • 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:

  • 06h30: India RBI interest rate decision – 25 bps hike expected
  • 07h00: Japan leading and coincident indices (June)
  • 08h00: SA gross and net reserves (July)
  • 14h30: US non-farm payrolls, unemployment rate (July)
  • 21h00: US consumer credit (June)
  • China current account balance (Q2:22)

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