In the loop 23 July 2024

In the loop

Christelle Grobler

What you should know this morning:

The rand is trading at R18.25/$ this morning, after closing stronger yesterday (R18.26/$*).
EM currencies were mixed yesterday; the COP (+1.1%), MXN (+0.8%) and CLP (+0.5%) gained the most; the TWD (-0.4%), IDR (-0.2%) and ARS (-0.2%) lost the most.
Asian equity markets are mixed this morning, the Nikkei is up, while the Shanghai Composite and the Hang Seng are down.

The International Monetary Fund (IMF) in a recent blog highlighted the importance of interest rate differentials as a fundamental driver of exchange rates.
According to the IMF, emerging market currencies have declined around 4% on net against the USD, year-to-date.
Countries that experienced the largest exchange rate depreciations saw the most pronounced narrowing of their interest rate differentials with the US, or have the lowest levels of interest rate differentials.
While “currency depreciations can occur even when the economic outlook for a country is solid”, the IMF noted that “country-specific factors might also be at play, such as fiscal concerns or political developments”.
“Yet with an uncertain global backdrop, and markets increasingly sensitive to economic data releases, central bank communications, and political uncertainty in some major economies, outflow pressures could spike suddenly” the IMF warned.
Recent work by the IMF showed that faithful adoption of inflation targets may lessen the pass-through of currency depreciation to domestic conditions.

Today sees the release of further data on US economic activity in June and July.
Existing home sales for June are due; turnover of existing homes is expected to have remained low.
While mortgage rates have come down somewhat lately, they remain too high to entice home sales.
The Richmond Fed manufacturing index will likely show continued pressure on production activity in July; regional Fed manufacturing indices for July have, however, been mixed.

President Xi Jinping has unveiled tax reform and other plans to improve the finances of China’s indebted local government.
Plans to shift more revenue from consumption tax to regional governments were included in the resolutions after the Chinese Communist party’s Central Committee’s meeting.
City governments will be given more autonomy in regulating local property markets, and officials pledged to reform the pre-sale housing model.
Other changes include giving local governments more power over non-tax revenue; for example, allowing leeway in setting the rate of local surcharges for education.

Eurozone consumer confidence for July is due out today.
Consumer confidence improved to -14 in June, and is expected to edge up slightly further, to -13.5 in July.
At these levels, consumer confidence remains low by historical standards.
Dutch consumer confidence for July, released earlier this morning, saw a decline to -24, from -23 in June.

Locally, today sees the release of the SARB’s business cycle indicators.
The focus will be on whether the leading indicator for May continued to show positive momentum.
In April, the leading indicator improved 2.4% m/m and 1.8% y/y, to a level of 113.

Brent crude oil is currently at $82.41/bbl; ($82.40/bbl*).
Gold is at $2394/oz ($2393/oz*).
SA CDS 199bps*, Brazil 155bps* and Turkey 260bps*.
Yields: US 10yr at 4.25%*, German bund at 2.50%*, SA 10-year generic at 10.85%*, SA’s R2030 at 9.56%*.

* Denotes yesterday’s close.

Key events and data:

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