Good morning, | |||||||||||||||||||||||||||||||||||||||||||||||||||||
On the wires… | |||||||||||||||||||||||||||||||||||||||||||||||||||||
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Quote of the day | |||||||||||||||||||||||||||||||||||||||||||||||||||||
“Recognising power in another does not diminish your own.” – Joss Whedon | |||||||||||||||||||||||||||||||||||||||||||||||||||||
The indicators | |||||||||||||||||||||||||||||||||||||||||||||||||||||
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Currency crackdown… | |||||||||||||||||||||||||||||||||||||||||||||||||||||
The rand is riding the headwinds on renewed risk-on appetite and shifts in markets expectations. President Trump announced that the US had ‘very good talks’ with Iran yesterday, which has increased expectations of an end to the 5-month long war. This has resulted in the rand benefiting in numerous ways: The price of oil has dropped from $83 on Monday morning to $78 per barrel at time of writing. This is due to mediators between the US and Iran stating they are making progress in efforts to end the war (although not providing any further details). The potential of the SoH being reopened drove the oil price down to the much more palatable price below $80 per barrel. In conjunction with this, energy economists have highlighted how movement of oil through the SoH last week was more robust than the markets expected. Reports indicate that 40-45% of pre-war quantities flowed through the region and calculations show that only 50-60% of pre-war quantities would result in the current market being oversupplied. Lower oil prices and the shortage deficit steadily decreasing are promising signs for the rand, which is very sensitive to higher oil prices. The lower price of oil also has an effect on inflation figures. It eased inflation concerns, which in turn has eased expectations of higher interest rates across the globe. The market is now pricing a 59% probability of an interest rate hike by the FED in September’s meeting, down from 67% earlier in the week. As a result, the US dollar is trading softer as investors will look to move their money to different investment options such as emerging market economies like South Africa and precious metals. Gold has benefited from this drop in the oil prices, as it has traded inversely to the price of oil, particularly since the start of the war. Higher interest rate environments usually see a drop in the price of precious metals (precious metals yield no interest), so when eased inflation and interest rate expectations are at hand, gold trades higher. This is good news for South Africa, which will have mining exporters looking to raise exports, providing further support to the rand due to increased ZAR flows. Equity markets are also rampant, particularly Asian markets. Renewed demand for tech stocks and robust earnings fuelled Asian markets with South Korea’s KS11 jumping 4.3% and Japan’s Nikkei 3.5%. the DOW Jones and SA Top 40 are also trading higher, whilst the S&P 500 futures remaining flat due to SpaceX being down 7.5%. Overall, the rand is sitting in a good position this morning and if a permanent end to the war is announced, could continue its strengthening against overseas currencies. Stay disciplined in pricing and don’t forget to lock in profits. | |||||||||||||||||||||||||||||||||||||||||||||||||||||
On the radar… | |||||||||||||||||||||||||||||||||||||||||||||||||||||
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Did you know? | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Months that begin on a Sunday will always have a Friday the 13th. | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Kind regards
Luke Rosenberg
