Former FED Chair Ben Bernanke used to joke that "monetary policy is 98% talk and only 2% action."? An exaggeration of course but an indication of how the market hangs onto the comments by FED speakers, and something to bear in mind given that we have 9 FED speakers today including Chair Jerome Powell.?
These are the mid rates at 5:55 today:
Brent Crude = $73.57 per barrel
- Yet another good day for the Rand yesterday which was unfortunately tarnished by a late spell of Dollar strength.? After opening at R17.32 to the Dollar we managed to hit the day’s best level of R17.14 just after midday, but a rebound by the Dollar meant we closed the day at R17.29.?
- Things have been going very well for the Rand of late with positive local developments, a Dollar on the back foot and, more recently, long awaited stimulus news out of China all coming together at the same time and allowing us to hit R17.14.? Had conditions remained unchanged we could well have been headed for a Dollar exchange rate with a 16 handle, and while that could still materialise in the days ahead we unfortunately saw the greenback dust itself off yesterday afternoon which has delayed the celebrations.?
- Looking at local developments the Rand has reacted favourably to the SARB’s 25bps cut last week as not only is this the first step towards a more accommodative policy environment that will stimulate economic growth, but it was also a smaller cut than the FED’s 50bps move which improves the attractiveness of Rand based assets from a carry trade perspective.? Added to this good news was our leading business cycle indicator released yesterday which tracks movements across vehicle sales, business confidence, money supply and other factors, and while this was forecast to worsen from -0.1% to -0.2% it actually came in at a very healthy 0.7% which is a big beat to the upside and a catalyst for further Rand strength.?
- Things were looking rosy for the Rand, especially as the Dollar Index had fallen to 100.21, but the index then went on a run to 100.97 which in turn knocked us back to R17.29.? Various factors were at play but the main driver was the market slightly dialling back the prospects for another 50bps FED cut in November, this after numerous FED speakers yesterday agreed that the larger than usual cut last week was warranted but that the FED should not rush into similar sized moves in subsequent meetings.? With chances of a more sedate 25bps cut improving that pushed the Dollar Index higher.?
- The following is from CNBC and talks to Dollar support from smaller rate cut expectations:? The Dollar held firm on Thursday following its sharpest rally since early June as traders looked ahead to speeches from key?FED?policy makers later in the day for clues on the?pace?of interest rate cuts. While there was no obvious catalyst for the rebound, investors appeared to take a more nuanced view on just how aggressive future US rate hikes would be, with?FED speakers?this week not presenting a unified view on the path forward. “I’m not getting the feeling at this point that it’s particularly unanimous,” said Kenneth Crompton, chief rates strategist at NAB. “It sort of feels like they’ve done their catch up and from here it’s probably more 25s than 50s.”
- The FED have told us that they are now more focused on labour metrics than inflation readings and that makes today’s initial weekly jobless claims an important high frequency data point.? Forecasts suggest the reading will go from 219?000 claims last week to 223?000 today which is a small move higher, but if the number is significantly higher that will reignite concerns around the US labour market and bring a 50bps cut in November back onto the table which is Dollar negative.? Of course the opposite is also true, and a lower number will further cement a 25bps cut while supporting the Dollar.?
- Local market data today sees our August producer inflation print at 11:30 which is expected to fall from 4.2% to 4.0%.?
- Possible USD mid rate trading ranges in the Rand today are R17.10 and R17.40.
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