South Africa could soon have no blackouts for 24 hours.?"I want to say to the South African people we are much, much closer to that date."?-?Electricity Minister Kgosientsho Ramokgopa, although he did say we need to get past July and August’s traditionally cold weather first.??
These are the mid rates at 7:30 today:
Brent Crude = $75.10 per barrel
- It’s clear that our electricity woes are easing somewhat, and the effect can be seen in the Rand, but last week was a reminder that our price action is still very dependent on Dollar movements.?We started the week at R18.70 to the Dollar and strengthened to R18.43 on improved load shedding sentiment, but the Dollar then went on a run which knocked us all the way back to R19.06 by Friday morning.?Fortunately, the Dollar itself then managed to trip up which saw us end the week at R18.86.
- As local geopolitical and load shedding headlines abate the Rand is trying to make its way back towards R18.00 and below but a lot of this move depends on accompanying Dollar weakness, something that was in short supply last week until late Friday afternoon.?There were two reasons why the Dollar stretched its legs to the upside, those being FED Chair Jerome Powell speaking at a central bankers’ meeting in Spain and the other being a much better than expected initial US jobless claims report, both of which saw the Dollar Index climb from 102.35 mid-week to 103.50 by Friday morning while sending the Rand crashing to R19.06.
- The FED delivered what they felt was a “hawkish pause” at their June policy meeting, that being no change to the US interest rate but assurances that not one, but two further hikes are pencilled in for 2023.?Powell used last week’s platform in Spain to drive this point home saying that he expects the FED to resume rate hikes in their July meeting while also stating that the FED’s 2% inflation target will only be hit in 2025.?Powell was Dollar positive, and then came the weekly initial claims report which fell by 26?000 from the previous week, way below expectations and the biggest weekly drop in 20 months.?Powell and a tighter labour market sent the Dollar up while hurting the Rand.??
- Fortunately, while every headline plays its part, the market really has eyes only for US inflation readings, and on Friday we got a better than expected personal consumption expenditure (PCE) reading which sent the Dollar Index lower.?Month-on-month PCE fell from 0.4% in April to 0.1% in May while the headline figure dropped from 4.3% to 3.8%, downward movements that the FED wants to see given that PCE is their preferred measure of inflation.?Not only that but on Friday we also got US consumer spending data which came in at 0.1% in May, down from 0.8% in April, and slowing consumer demand is also exactly what the FED is trying to achieve in their inflation fight.??
- The following is from Reuters and is good news for the Rand, but also points out there is still some way to go:??The Dollar Index was lower on Friday following two straight days of gains, after economic data showed a cooling in consumer spending, raising some doubt about the potential aggressiveness of the FED in fighting inflation. "Spending was weak, especially in inflation-adjusted terms. Goods spending fell and even services spending looks to be sputtering," said Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin. "Inflation is drifting lower. The off-ramp to 2% inflation is a long one, though."
- Locally the week holds our June manufacturing and services purchasing managers readings which could move the dial but internationally all eyes will be on the June FED minutes on Wednesday, and then the latest US payrolls report on Friday afternoon.?At an investor level, with the first half of 2023 notching up the biggest gains in decades (for the Nasdaq it was the best first half since 1983!!!) stocks will be hoping that Friday’s jobs report shows continued resilience in the labour market in an environment where inflation is gradually moving lower.?
- Local market data today sees our June manufacturing PMI at 11:00 followed by the month’s new vehicle sales at 1:30pm
- Possible USD mid rate trading ranges in the Rand today are R18.65 and R18.95.??