OVERVIEW
The Federal Reserve Bank of America raised their interest rates by 75 basis points on Wednesday. This is the biggest rate hike since 1994. Although the Fed has made one of the biggest moves to curb inflation, they are now faced with the reality of a recession as fears ripple through the markets.
U.S AND SA MARKETS
The Fed delivered their interest rate decision on Wednesday and hit the U.S with the most aggressive rate hike in 28 years in order to curb the new pandemic of inflation, which is at a 40-year high in the country. Investors already priced in a 75 basis point interest rate hike from the Fed and the Dollar has not gained much strength since then. Fed Chair Jerome Powell says that it is possible for the central bank to achieve a soft landing. However, investors are fearful as the economy is on the brink of a recession. The Fed also noted that they will most likely hike by another 3 quarter points in their next meeting. Fed Chair Powell noted that this hike is unusually large and he does not expect moves of this size to be common.
Stocks in the U.S fell drastically following the Fed speech as investors are not as confident as the Fed. The decision from the central bank resulted in a frenzy of fears of global growth and recessions. Investors dropped shares and fled away from the greenback as bond yields reached multi-year highs. If the Fed does not make a soft landing, the U.S economy and the Dollar could be in for a rude awakening.
Locally, it has been reported that South Africa is considering buying oil from Russia in order to ease the pain of high fuel prices. The minister of mineral Resources and Energy said that it is an idea and a purchase is far from being finalized as there are certain procurement processes that would need to be followed.
We are expected to see our interest rate decision next month and it will be interesting to see if the SARB will follow suit and hike by 75 bps like the U.S. Economist believe that SARB will not be moving as aggressively as the Fed and said that given our inflation is not as high as the U.S and EU, the SARB will be gentler to South Africans and a 25 basis point interest rate hike will make more sense.
Technically:
The highly anticipated 75 basis point hike was delivered this week and the greenback sold off temporarily on Wednesday having fallen from a high of R16.09 to R15.71 prior to the rate announcement. As expected the Dollar picked up against the Rand afterwards from a low of R15.71 to R16.10, making back the losses in 1 day. Today the pair opens at R16.01 and the greenback has bullish sentiment. The pair is likely to strengthen to R16.25 next week, and therefore this is a good time to buy for importers.
EUROPEAN MARKETS
We are expected to see the Eurozone’s CPI data today and it will give us an indication as to how hawkish the ECB will be with their interest rate decision in an attempt to bring inflation down to target. If inflation readings are high, the ECB will most likely hike interest rates by 50 basis points. The ECB called for a surprise emergency meeting on Wednesday as numerous countries in the Eurozone are faced with rising borrowing costs. This has put a lot of pressure on the ECB and they will have to move carefully in their interest rate decisions. The ECB also ended their bond buying stimulus in the beginning of July. The EU is feeling the strain of the effects of the war as well as soaring inflation. There has been speculation that the EU is currently in a state of crumble and this could get worse if the ECB does not move strategically.
Yields in the EU are currently at record highs and have topped above the 4% threshold for the first time in 8 years. This has sparked fears in investors and the idea that “Fragmentation” is on the doorstep of the EU. German Minister of Finance has said that there is no need for concern about the stability of the Eurozone.
European gas surged to 24% after Russia claimed that they are missing a turbine. This has since resulted in Moscow tightening its supply of gas for two days in a row. Russia says that the tightening of gas supply is due to a compressor unit not being delivered. Germany however, says that this is just a political move from Russia.
Technically:
The Euro had a strong trading day on Thursday against the Rand. The pair painted a bullish engulfing candle, which is a bullish signal. The pair strengthened from a low of R16.46 to a high of R16.94. Today we open at R16.88 and much like the Dollar, further Euro strength may be in the pipeline. The pair is trading towards an area of resistance, and we may see a high of R17.12 next week.
uk markets
The Bank of England delivered a 25 basis point interest rate hike yesterday to 1.25%. This is the first time in 13 years that the base rate has risen above 1% in the UK. Mortgage rates expected to rise after second biggest monthly increase this year. The BoE is desperate to curb inflation which is currently at 9%, more than the BoE’s target which is 2%, and this is the fifth time that they have raised the base rate in six months, they have noted that the main reason inflation is so high in their country is due to rising global energy prices caused by the War in Ukraine.
The bank has warned that inflation will hit 11% in Autumn, this will ruin the economy. It is likely that the Bank of England will raise interest rates higher in the future as like many others, their economy is facing the harsh reality of a recession. Economists also anticipate that the UK GDP will shrink by 0.3% this quarter.
Technically:
The Pound sterling was bearish against the Rand this week, having had a high of R19.45 on Monday, and posted a low of R19.16 yesterday. Despite the strong drop, the sterling made up most of the week’s losses quickly against the Rand as the GBP/ZAR soared back up to R19.41 yesterday evening. Today we opened the market at R19.37.
Technical levels to watch for next week:

USD/ZAR
High – R16.28/$
Support – R15.94/$
Low – R15.71/$
EUR/ZAR
High – R17.12/€
Support – R16.83/€
Low – R16.63/€


GBP/ZAR
High – R20.00/£
Support – R19.70/£
Low – R19.46/£