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Daily Dose

Daily Dose

Good Morning,

On the wires…

  • Italian PM Draghi resigns after coalition deserts him
  • Biden says US military opposes Pelosi trip to Taiwan
  • WHO deciding on sounding highest alarm on monkeypox
  • Collins Chabane Municipality mayor shot dead in robbery at home
  • Eskom heads to court to overturn 9.6% tariff hike
  • Aussie ref for Springboks v All Blacks at Mbombela Stadium

Cartoon of the day…

The indicators…

Currency crackdown…

We expected the rand to have a tumultuous time yesterday afternoon, with both ours and the ECB’s interest rate decisions coming out. The SARB increased our repo rate by a sizeable 75 basis points, the biggest hike in almost 20 years – taking it to 5.50%. The central bank also raised its 2022 growth forecast to 2% (up from 1.7%), which is not far off from the 2.5% it now expects the global economy grow by. The ECB also went with a larger-than-expected hike, raising rates by 0.50% hike as it looks to prioritize inflation control over economic growth. This hawkish pivot supported the euro and helped to move it further away from parity with the US dollar. Despite this and after reaching highs of 17.60 yesterday, the rand actually made some gains against the European currency – to sit around 17.30 this morning. While there was a knee jerk reaction of euro strength as the ECB slightly closed the gap on the Fed, there are still undoubtedly major recessional concerns in the eurozone.

From a dollar perspective, the USD/ZAR pairing underwent some serious swings shortly after our interest rate announcement. It dropped by around 10 cents to settle at the 17.05 mark, where it still sits this morning. The dollar itself is on track for its biggest weekly loss in a month, as reflected by a 0.95% weekly fall in the dollar index. It did always seem as though dollars were overbought, with investors desperate for a ‘safe’ bet in these unprecedented times. USD was also most likely weighed down overnight by a decline in Treasury yields after data showed a slump in factory activity and a large rise in applications for unemployment benefits. This is indicative of an economy already feeling the effects of aggressive US monetary policy tightening. Still, Fed officials have indicated that the central bank would likely continue to raise rates by 75 basis points at next week’s meeting.

Commodity-wise, gold is undoubtedly in a downtrend. Rallies are short-lived, as the value of the inflation-hedging metal suffers from falling inflationary expectations. Oil prices continue to be tugged up and down by supply issues emanating from the (still) ongoing Russia/Ukraine situation, and the expectation that oil demand will soften due to economic downturn. Data has already exposed that U.S. gasoline demand had dropped nearly 8% from this time last year, in the midst of America’s summer driving season.

On the radar…

  • UK – BoE MPC Member Pill Speaks
  • EU – Manufacturing PMI
  • EU – Services PMI
  • UK – Composite PMI
  • UK – Manufacturing PMI
  • UK – Services PMI
  • US – Manufacturing PMI
  • US – Services PMI

Did you know?

The moon is roughly 1/400th the size of the sun, but it’s also 1/400th the distance away from Earth. This is why the sun and moon look like they’re the same size; a coincidence not shared by any other known planet-moon combination.

Happy Friday!

Kyle

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