OVERVIEW

The Rand gains its two week losses after South Africa sees its biggest interest rate hike in 6 years. This comes after the SARB governor announced that they will be hiking our interest rates by 50bps effective from today.

U.S AND SA MARKETS

The U.S Dollar is trading weaker after treasury yields in the U.S fell drastically to its lowest level in nearly a month. This came after Fed chair Powell announced that the Fed will go further than their “neutral” rate if need be. A very aggressive Fed signalled to investors that the economy is in for a harsh landing and that the Fed is desperate to curb inflation, resulting in investors turning away from the Safe-haven currency, as temporary as that may be. It is safe to say that inflation is now a global pandemic and is slowly making “recessions” a reality. U.S initial jobless claims rose to 218,000 for last week which was quite unexpected.

The SARB (South African Reserve Bank) delivered our interest rate decision and has increased it by 50bps to 4.7%, this is the biggest hike that the country has seen since 2016 and suggests that the era of 25bps hikes could most likely be a thing of the past. It is noted that the decision was made against global growth concerns as well as national inflation and growth concerns. The Prime lending rate has increased to 8.2% and the Reserve bank has changed its inflation expectation rate for the year to 5.9%. The MPC has implied that the key inflation rate will be at 5.3% by the end of the year. While an increase in the interest rate supports the Rand strength, the risk of anchoring inflation still lurks on the Rand and the economy. Inflation continues to sky rocket and leaves us with a lot of global market uncertainty. It is noted that our country is managing inflation much better than the rest of the world however with fuel hikes coming soon, it will be interest to see how we fair.

Technically:

The Rand is performing well in the markets from Tuesday this week, after starting the week around R16.31/$, we saw a low of R15.76/$ yesterday. Rand strength comes after the SARB’s interest rate decision as well as the Fed’s aggressive stance. We expect the USD/ZAR pair to trade within the range of R15.74/$ – R16.06/$, if the pair breaks R15.75/$ then we can see the pair test a next possible low of R15.56/$. These are really good buying levels considering the volatility of global markets. We anticipate that the Rand will remain resilient for the remainder of the week.

EUROPEAN MARKETS

The ECB has released the minutes of their April meeting and it is screaming hawkish. The minutes reveal that a rate hike in July is now a confirmed decision, however it is not clear as to whether the ECB will decide on a 50bps hike or a 25bps hike. The war in Ukraine has thrown the EU into the slumps and inflation has become stagnant in the country soaring to 7.4%. The ECB is to confirm plans at their next meeting with regards to ending a bond purchase scheme in the third quarter. Some of the ECB members stressed that it is important to act without delay as the economy is under dire strains and still heavily affected by the war in Ukraine. The ECB mentioned that net asset purchases should be ended as soon as possible.

Russian oil proceeds totaled 1.59 million barrels per day increasing from 1.5 million pb in March and 1.53 million bp earlier this year. The Russian Ruble has fallen 22% in value, increasing the price of imported goods and leading to a 14% rise in Russia’s inflation rate. The Russian Ruble has  since recovered slightly due to Moscow’s measures to prop it up however remains weak and weighing on Emerging Markets.

Technically:
The Euro remains weak in the markets however the currency is trying to gain its losses against the Dollar after treasury yields fell in the U.S. The Rand currently remans dominant against the Euro and we anticipate the pair will trade within the range of R16.35/€ to R17.07/€. We expect that the Euro will gain momentum slowly leading up to the ECB interest rate decision in July.

UK MARKETS

Inflation in the UK remains a constant issue and weighs heavily on the economy and on many households in the country. As inflation in the UK now sits at a 40- year high and economic growth falling sharply, the UK economy is in for a hard hit. Retail sales data came in yesterday at 1.4% over the month of April and core retail sales increased by 4.9% MoM as well. The BoE will have to take drastic measure to help the economy recover whilst avoiding a lurking recession. The BoE chief economist has mentioned that they still have some way to go in terms of policy tightening.

Technically:
The Sterling Pound remains softer against the Rand and we anticipate that the GBP/ZAR pair will trade within the range of R19.58/£ to R20.09/£, we do not expect the pair to move drastically however the BoE has mentioned that further tightening of monetary policy is still needed in order for the economy to recover. Volatility will persist with the Pound, until fears of a recession are no longer a concern.

Technical levels we are watching for next week: