In the loop

What you should know this morning:

• The rand is trading at R17.43/$ this morning, after closing weaker yesterday (R17.45/$*).
• EM currencies were mostly weaker yesterday; the PHP (-1.1%), CLP (-0.9%), HUF (-0.6%) and BRL (-0.6%) were the biggest losers.
• Asian equity markets, the Nikkei, Hang Seng and Shanghai Composite, are down this morning.

• Japan’s Tokyo CPI came in lower than expected in September.
• Tokyo's headline inflation remained at 2.5% y/y, with CPI excluding fresh food and energy slowing from 3.0% in August to 2.5% in September.
• This early indicator of country-wide CPI may have been distorted by Tokyo’s wavier of childcare fees for firstborns.
• Services inflation, the BOJ’s key focus, slowed to 1.5%, from 2.0% in August.
• However, underlying momentum in services inflation remained intact; higher wages as well as a recovery in recreational spending have been boosting services prices.

• US existing home sales slowed less than expected in August, remaining around the 4 million (annualised) mark.
• Existing home sales declined 0.2% m/m, after rising unexpectedly by 2.0% m/m in July.
• Declining mortgage rates and high inventory levels should support sales in coming months, according to the National Association of Realtors.
• The median house prices rose 2.0% y/y in August, to $422,600.

• Monthly US personal income and spending data, including the PCE price index, for August are due out today.
• Personal consumption growth surprised on the upside in Q2:25, accelerating by 2.5% q/q (annualised).
• Real personal spending growth likely slowed slightly in August on higher inflation and somewhat slower nominal income growth.
• The PCE price index is expected to have ticked up by 0.3% m/m in August, to 2.7% y/y, from 2.6% y/y in July.
• Core PCE, which is tracked closely by the Fed, likely remained at 2.9% y/y in August.

• Dallas Fed President Lorie Logan has reopened the debate around the benchmark rate used for the implementation of monetary policy by the Fed.
• Logan argues that the fed funds target is outdated since the federal funds market has largely been supplanted by the market for repurchase agreements.
• She noted that the connections between the little-used interbank market and overnight money markets are fragile and could break suddenly, with attendant risks for monetary policy effectiveness.
• Fed officials have, most recently in their review of monetary policy implementation tools in 2018, studied moving away from the fed funds rate to another benchmark.
• “The shift in private activity toward secured markets makes it very likely, in my view, that the target rate will eventually need to change”, Logan said.
• “If the target rate must change, the best time for a change would be when markets are functioning smoothly and market participants can have plenty of advance notice”, she warned.
• Logan emphasised that replacing the fed funds rate wouldn’t have broader implications for monetary policy strategy.

• Locally, there are no major data releases scheduled for today.

• Brent crude is up this morning, and down by 6.8% year-to-date.
• The gold price is down this morning, and up by 42.8% year-to-date.

• Brent crude oil is currently at $69.56/bbl; ($69.42/bbl*).
• Gold is at $3747/oz ($3749/oz*).
• SA CDS 170bps*, Brazil 136bps* and Turkey 260bps*.
• Yields: US 10yr at 4.17%*, German bund at 2.77%*, SA 10-year generic at 9.24%*, SA’s R2035 at 9.12%*.

* Denotes yesterday’s close.

Key events and data:

• 10h00: Eurozone ECB 1-year, 3-year CPI expectations (August)
• 14h30: US personal income, spending, PCE price index (August)
• 16h00: US University of Michigan sentiment, inflation expectations (September – final)

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