South African rand firms at start of data-filled week

British Pound

Reuters: Sterling rose against the dollar and euro on Monday, as investors were on edge ahead of U.S. inflation data and the European Central Bank's meeting later in the week. The pound was last up 0.29% against the dollar to $1.2777, after easing 0.15% on Friday. Sterling has taken a 2% tumble against the greenback in the last three months. While the re-election of Donald Trump as president boosted the American currency in recent weeks, for the year to date, the pound is up 0.40%.

Even though investors were still waiting for U.S. consumer price data on Wednesday, markets have priced in a quarter-point interest rate cut by the Federal Reserve next week as a near certainty. In Europe, investors were looking ahead to the ECB policy meeting this Thursday, where a quarter point cut is priced in. "There is little doubt that the ECB will deliver a widely anticipated 25bp rate cut, which will bring the deposit rate down to 3%," said UniCredit analysts.

Sterling strengthened against the euro on Monday, up 0.12% at 0.8282 pence. The single currency has lost more than 4% against the pound since the start of the year. Michael Brown, senior research strategist at Pepperstone, saw little opportunity for sustained gains for the pound on its home turf. "The macroeconomic backdrop certainly doesn't support much by way of significant further gains for the pound". "We had reports out this morning that now job vacancies are at their lowest level in over four years in November. And of course, that comes as unemployment ticks higher and as inflation remains pretty stubbornly high here in the UK," Brown added.

Demand for workers in Britain collapsed last month after the new Labour government's first budget, which raised employers' social security contributions, a survey published on Monday showed. The Recruitment and Employment Confederation trade body and accountants KPMG said their index of demand for staff slid to 43.9, the lowest reading since August 2020. The Bank of England is largely expected to hold interest rates steady at its next meeting on Dec. 19.

US Dollar

Reuters: The dollar was up slightly in skittish trading on Monday as investors awaited U.S. inflation data later this week, while the Australian and New Zealand dollars rallied after China pledged an "appropriately loose" monetary policy next year. While markets have priced in a quarter-point interest-rate cut by the U.S. Federal Reserve next week as a near certainty, investors are waiting for U.S. consumer price data on Wednesday. "The move higher in unemployment that we saw in November, that really just cements the case for a 25-basis-point cut next Wednesday," said Michael Brown, senior research strategist at Pepperstone.

Data on Friday showed U.S. job growth surged in November, but a rise in the unemployment rate to 4.2% pointed to an easing labour market that should allow the Fed to cut interest rates again this month. The dollar index was up 0.179% at 106.14. The euro was down against the dollar at $1.0554, having fallen earlier by as much as 0.3%, while the greenback gained 0.77% against the yen to 151.235. The Australian dollar gained 0.82% on the greenback, and the kiwi rose 0.58%, after China announced a shift in monetary policy to spur growth.

The two currencies often serve as a proxy for the Chinese yuan, which strengthened in the offshore market to leave the dollar down 0.26% at 7.2670. China will adopt an "appropriately loose" monetary policy next year as part of steps to support economic growth, and will implement a more proactive fiscal policy and step up "unconventional" counter-cyclical adjustments, state media reported on Monday, citing a Politburo meeting. "This is a market right now that wanted to hear good signals about global growth, and so it's found receptive ears," said Adam Button, chief currency analyst at ForexLive. "We've heard promises from China before, but, once again, they're getting the benefit of the doubt."

The dollar rose 0.44% versus South Korea's won. Over the weekend, South Korean President Yoon Suk Yeol survived an impeachment vote in parliament prompted by his short-lived attempt to impose martial law last week. Mizuho Bank strategist Vishnu Varathan pointed to a host of geopolitical developments, such as the weekend fall of Syrian President Bashar al-Assad and trades related to macroeconomic factors and President-elect Donald Trump, as providing markets further impetus to stay long dollars. "There's no incentive to short the dollar against any particular currency," he said.

Last week's headliner, bitcoin, which hit six-figures for the first time at a record $103,649, was last at $97,009. The main events investors are watching this week are the ECB policy meeting on Thursday, where a quarter-point cut is baked in, and China's closed-door Central Economic Work Conference. The Bank of Canada, the Swiss National Bank and the Reserve Bank of Australia meet this week, with deep rate cuts expected from the first two that could turn yield differentials even more against their currencies.

The Canadian dollar traded near a 4-1/2-year low on Monday as markets anticipate another outsized interest-rate cut. "The potential rate cuts by the ECB, BoC, and SNB reflect a significant shift in monetary policy," said Lukman Otunuga, senior market analyst at FXTM. "Combined with rising political risks and economic data, these decisions could drive substantial currency movements."

South African Rand

Reuters: South Africa's rand firmed early on Monday, at the start of a week packed with economic data releases that will shed light on the health of Africa's most industrialised economy heading into the new year. At 0732 GMT, the rand traded at 17.94 against the dollar, about 0.5% stronger than its previous close. "The rand was able to take back some ground last week, which could extend through the start of this week, although with so much domestic data due, there is bound to be some apprehension to take on any significant directional trade," said ETM Analytics in a research note.

South Africa-focussed investors will this week look to October mining production and manufacturing data on Tuesday and retail sales figures on Wednesday. Also on Wednesday Statistics South Africa will publish November consumer inflation data, and on Thursday it will release producer inflation numbers for the same month. "All of these data sets are relevant as investors try to gauge prospects for the SA economy through the year ahead," the ETM note added. On the Johannesburg Stock Exchange, the Top-40 index was down slightly in early trade. South Africa's benchmark 2030 government bond was little changed, the yield at 8.925%.

Global Markets

Reuters: Global shares turned lower on Monday as traders focused on U.S. inflation data and chip stocks fell, while Beijing's promise of stimulus and the sudden collapse of the Syrian government boosted oil and gold prices more than 1%. U.S. inflation data this week could cement a December interest rate cut by the Federal Reserve at its meeting next week. China's decision on Monday to alter the wording of its stance toward monetary policy for the first time since 2010 helped global sentiment. Beijing pledged to introduce stimulus to encourage economic growth next year.

The rapid collapse over the weekend of Syrian President Bashar al-Assad's 24-year rule complicates an already fraught situation in the Middle East. Friday's U.S. monthly employment data was strong enough to soothe any concerns about the resilience of the economy, but not so robust as to rule out a rate cut from the Federal Reserve next week. MSCI's gauge of stocks across the globe fell 2.05 points, or 0.23%, to 871.68. The Dow Jones Industrial Average fell 240.59 points, or 0.54%, to 44,401.93, the S&P 500 fell 37.42 points, or 0.61%, to 6,052.85 and the Nasdaq Composite fell 123.08 points, or 0.62%, to 19,736.69.

Shares of chip maker Nvidia fell 2.5% after China's market regulator said it had opened an investigation into the company over suspected violation of the country's antimonopoly law. "In addition to being reminded that December is positive 'close to three-fourths of the time,' we have seen record equity inflows, full positioning from asset managers and the highest ever reading from the Conference Board’s survey of retail investor expectations," Morgan Stanley's chief investment officer, Lisa Shalett, said in a note. "Complacency indicators are flashing, however, and while we appreciate technicals’ short-term validity, we encourage long-term investors to be measured in their enthusiasm," she said.

European shares closed at their highest levels in six weeks on Monday, led by mining and luxury stocks, after China's promise of renewed stimulus. The STOXX 600 index edged up 0.1%, and notched its eighth consecutive session of gains. Last week's U.S. November payrolls report showed 227,000 jobs were created, compared with expectations for a rise of 200,000, while October's hurricane-distorted number was revised up. Markets now imply an 85% chance of a quarter-point cut at the Fed's Dec. 17-18 meeting, up from 68% ahead of the jobs figures, and markets have a further three cuts priced in for next year. The next test is Wednesday's U.S. inflation report.

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.2% to 106.16, with the euro down 0.15% at $1.0552. U.S. Treasury yields rose as traders waited to see whether stubbornly high price pressures could derail expectations for a Fed rate cut next week. The yield on benchmark U.S. 10-year notes rose 5 basis points to 4.203%, from 4.153% late on Friday. The European Central Bank is widely expected to deliver a quarter-point cut on Thursday.

In Asian markets, Chinese stocks and bonds rallied after China's Politburo was quoted as saying that the country will adopt an "appropriately loose" monetary policy next year, rather than a "prudent" one, marking the first time it has changed the wording of its stance in around 14 years. MSCI's broadest index of Asia-Pacific shares outside Japan closed higher by 0.88%. South Korean stocks slid 2.8%, while the won currency weakened, even as authorities pledged all-out efforts to stabilise financial markets amid uncertainty over the fate of President Yoon Suk Yeol.

This week is full of central bank meetings, aside from the ECB's. The Swiss National Bank could cut rates by as much as half a point given slowing inflation, as could Canada's central bank when it meets on Wednesday. The Reserve Bank of Australia meets on Tuesday and is one of the central banks expected to hold fire, while Brazil's central bank is set to hike again to contain inflation. "With geopolitical uncertainty high and conflicting signals from hard and soft data, monetary policy remains the only game in town to support economic activity, especially in the absence of strong political leadership in Paris and Berlin," said Barclays economist Christian Keller.

In France, President Emmanuel Macron had yet to name a new prime minister after Michel Barnier's minority government collapsed last week over his austere budget. Geopolitical concerns lifted both oil and gold. Spot gold gained 1.1% to $2,662.98 per ounce, and U.S. gold futures settled 1% higher at $2,685.50. Oil prices rose over 1%, with Brent futures settling up 1.4% at $72.14 per barrel. U.S. crude finished up 1.7% at $68.37. "Events in Syria over the weekend could impact the crude market and increase the geopolitical risk premium on oil prices in the weeks and months to come amid yet more instability in the Middle East region," said Jorge Leon, Rystad Energy's head of geopolitical analysis.

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