| USD = R18.45 | AUD = R12.38 |
| GBP = R22.05 | DXY = 105.22 |
| EUR = R19.46 | Brent Crude = $82.78 per barrel |
While our ladies cricket team were smashing England in the semi-final on Friday afternoon the Rand was also being hit for six with multiple headlines going against us. We fell to R18.48 which is the second worst level behind the R19.27 we managed to touch during the early 2020 peak COVID panic months.
Two headlines condemned the Rand on Friday, one sort of local and the other international. On the local front South Africa was unfortunately added to the grey list by the Financial Action Task Force (FATF), based in Paris, which is a serious blow when looking at the company we now keep on the 25 strong list. We fell short of FATF’s guidelines for anti-money laundering, tracking suspicious cross boarder transfers and lax controls when monitoring suspected terrorist financing. While the true implications of our grey-listing will only be felt over the coming months the initial news definitely hurt the Rand.
- The following is from Business Day: “Ultimately, the length of SA’s stay on the grey-list will depend on how seriously the recommendations are taken, and how effectively the deficiencies are addressed,” said Sangeeth Sewnath, deputy MD of Ninety One. “Clearly, grey-listing will be negative for SA in terms of reputational damage, and higher transactional, administrative and funding costs will result in a less efficient economy with more frictional costs. In aggregate, countries which receive a grey-listing status struggle to attract foreign investment.”
- Being grey-listed was not good but the Rand suffered a second blow from the Dollar as the FED’s preferred measure of inflation, the personal consumption expenditure index (PCE) moved higher on Friday afternoon. Not only did the January PCE reading come in stronger than expected but the December figure was amended to a higher level than previously reported, and with higher than forecast inflation that leaves the FED with little else to consider than higher interest rates. Compounding matters was a separate report confirming that US consumer spending jumped by 1.8% when 1.2% was forecast, and the strength of the US economy was once again underlined which will make inflation sticky.
- The following is from Reuters: The Dollar climbed to seven-week peaks on Friday, after data showed US inflation accelerated while consumer spending rebounded last month, reinforcing expectations that the FED may need to hike interest rates a few more times this year to curb the surge in prices. “The data was pretty strong all around and amazingly, there were positive revisions as well. And so that’s really saying something. For the Dollar, it’s in the driver’s seat,” said Mazen Issa, senior FX strategist at TD Securities in New York. “It looks like the markets have priced out any chance of a cut this year, which is a sizable shift given that barely four weeks ago, the market was looking at cuts in the second half of this year. That adjustment is a dollar-positive dynamic.”
- In terms of local market data we have an action packed week ahead, but the main event will be our Q4 2022 unemployment report released tomorrow. Unemployment has been falling for three quarters in a row and forecasts are calling for another drop from 32.9% to 32.8% last quarter, but as you can see this is the smallest of drops possible and so anything can happen.
The US PCE data showed an uptick to 4.7% from 4.4% after a figure of 4.3% was expected. New home sales there rose the their best in a year, and cements the call from the FED for higher rates for longer, boosting the Dollar further. One wonders how long this can go on for, and the proverbial question is “how deep is a hole?”. Indefinitely it seems, as long as there are inflationary pressure and the economy holds out.
The EU is also pushing for another round of 50-basis point rate hikes in March with Lagarde noting that what follows the March MPC meeting would be data-dependent, but she aims to get inflation down to 2%. The bank not only wants to return inflation to 2% but aims to keep it there sustainably.
Locally we have Q4:22 unemployment data out tomorrow and PMI, trade data and vehicle sales out later in the week. From the US we have durable goods date out today and ISM numbers and consumer confidence on Wednesday.
In sporting headlines the SA Proteas women’s cricket team did the country proud as they placed 2nd in the T20 World Cup Final, losing to Australia.
Oil prices inched lower in volatile trade on Monday, as a stronger dollar and fears of recession risks offset gains arising from Russia’s plans to deepen oil supply cuts. West Texas Intermediate US crude futures (WTI) traded at $76.09 a barrel, 23 cents, or 0.3% lower, while Brent crude futures were down 30 cents, or 0.36%, at $82.86 a barrel at 0411 GMT. Both benchmarks closed more than 90 cents higher on Friday. The dollar hovered near a seven-week peak on Monday after a slew of strong US economic data reinforced the view that the Federal Reserve will have to raise interest rates further and for longer.