OVERVIEW

Inflation is giving global economies, central banks as well as consumers an extremely tough time, constantly sparking recession fears.

u.s and sa markets

The Dollar has already seen a high of R17.68/$ this morning, levels last seen in August 2020 during the height of the Covid-19 pandemic. The greenback is high in demand and riding the wave of anticipation for an aggressive Fed. Expectations that the Fed would need to hike more aggressively to tame sky high inflation is very high. 2-year treasury yields are at a high, last seen 15 years ago.

Inflation in the U.S decreased to 8.1%. However, it was higher than initially forecasted and sent the Dollar to multi-highs as investors are confident that the Fed will deliver another 75 basis point interest rate hike to tame inflation.

US retail sales has risen sharply after a drop from the previous month. Consumers demand for goods has increased drastically and the value of overall purchases rose to 0.3% in August, which was higher than estimated. Initial jobless claims in the U.S declined for the fifth consecutive week, coming to a three month low and is pointing to a strong labour market. Jobless claims fell from 218,000 to 213,000 the lowest level seen since June.

The main focus for the following week will remain on the Fed as they are due to deliver their interest rate decision on Wednesday. There are numerous factors that is feeding to the hot inflation in the country and it will be interesting to see what the Fed will do to put a stop to what seems to be the new pandemic as inflation has been taking over the world and feeding into a global recession.

In South Africa, the country’s energy giant Eskom is targeting a 32% increase in tariffs from April 2023/24. The new tariff application is under consideration with Nersa (National energy regulator of South Africa) and a decision is due to be made by December this year. Economist Elize Kruger has said that the increase in tariffs will have a hugely negative impact on the economy.
Eskom is struggling to keep the lights on in the country as we are currently on stage 4 of load shedding with the possibility of lower stages from Saturday, with more power plants deteriorating.

We are also due to see our interest rate decision from the SARB next week and it is expected that they will hike by 75 basis points to cool inflation.

Technical:
The greenback is strong and trading at highs last seen in 2020. USD/ZAR pair sparked from a low of R16.99/$ on Tuesday, broke R17.55/$ yesterday and has seen a high of R17.68/$ this morning. The greenback is definitely on the forefront and we anticipate that the Dollar will trade around R17.35/$ to R17.80’s leading up to the Fed interest rate decision next week. At this point, there is not much that can weaken the greenback.

european markets

The Euro has gained strength in the markets after the ECB hiked rates by 75 basis points this month. The ECB have now prioritized the fight against inflation and policy makers have hinted that further significant hikes which has given investors confidence in the EUR.

The EUR cannot seem to move away from parity with a very strong Dollar. Although the ECB delivered a big rate hike, the ECB still has a lot of work to do as inflation currently stands at 9.1% in the EU and is fast approaching double digits.

Much like South Africa, the Eurozone continues to suffer from a long lasting energy crises which remains in the spotlight. Natural gas prices remain sky high and supplies are tight. European gas prices are 8 times higher than their normal levels for this time of the year, putting heavy strain on the economy as well as household budgets.

Technical:
The EUR has made a strong comeback in the markets after seeing multiple lows previously. The EUR has gained support from investors after the ECB hiked interest rates by 75 basis points, the hike was a saving grace for the EUR. The EURZAR saw a low of R17.20/€ but has since come up to R17.62/€ today. We anticipate the the EURZAR pair will trade within the range of R17.35/€ -R17.75/€.

uk markets

The Bank of England is expected to deliver their interest rate decision next week. Their meeting was initially scheduled for the 15th of September but has since been postponed for a week due to the passing of the Queen of England. It is anticipated the the BoE will likely hike rates by 0.5% to 2.5% at their meeting next week.

Inflation in the UK unexpectedly dropped to 9.9%, moving away from double digits but still at a 40 year high as fuel prices declined. The UK is still at a heightened risk of a recession which could bleed into 2023.

British retail sales has fallen sharply as the cost of living has put massive pressure on households. Retail sales fell by 1.6% and supermarket sales volumes also dipped by 0.9% in August.

Technical:
The British Pound is trading above R20/£ and is steady as the UK prepares for the Queen’s funeral. There has not been much movement with the GBP and we anticipate that the GBPZAR pair will trade within the range of R19.85/£ to R20.30/£.