ZAR: Rand Claws Back Some Of Earlier Losses After Refreshing Record Lows
May-30 14:04
USD/ZAR has come under pressure after hitting new all-time highs (ZAR19.8672) earlier in the session. The rate has now unwound the bulk of its initial gains thanks to a dissipation of wider greenback strength and South African DIRCO's clarification that the diplomatic immunities granted to the participants of the upcoming BRICS events "do not override any warrant that may have been issued by any international tribunal against any attendee of the conference."
- When this is being typed, spot USD/ZAR trades at ZAR19.7403, up ~730 pips on the session. The pair's risk reversals have eased somewhat, albeit they remain in the vicinity of recent cyclical highs, as participants see notable risk of further rand weakness.
- South Africa's budget deficit widened to ZAR67.5bn in April, which was reasonably close to the median estimate of ZAR67.0bn. This comes after a ZAR46.1bn deficit registered in March.
- Apart from domestic developments, China's May PMI figures will be watched in the coming days, with participants assessing the momentum behind the economic recovery of the top buyer of South African commodities.
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US TSYS: US FI Rates, Equities Finish Strong Ahead Next Wed's FOMC
Apr-28 19:46
- After a rocky start, Treasury futures are trading broadly higher late Friday, short end lagging with curves running flatter, 2s10s -6.119 at -61.515. Heavy two-way flow noted after March Core PCE climbed 0.3% vs. 0.2% est, the 1Q ECI up 1.2% vs. 1.1%.
- Close to expectations, it’s technically the softest core PCE print since Nov’22 but clearly remains far stronger than the monthly rate consistent with the 2% target.
- Services eased from 0.38% to 0.23% M/M whilst Bloomberg's calculation of non-housing core services fell from 0.35% to 0.24% M/M for its softest since Jul'22.
- Treasuries marked session highs by midmorning (TYM3 115-12 (+20.5), trading sideways after a brief decline on stronger than expected Chicago Business BarometerTM, produced with MNI.
- The barometer improved by 4.8 points to 48.6 in April. This was the highest reading since August 2022. Nonetheless, the headline index remained sub-50, thus signaling an eight consecutive month of contractionary business activity.
- Focus turns to next Wednesday's FOMC policy announcement where a 25bp hike in could mark the end of the Fed’s hiking cycle. With rates above 5%, and sticky inflation fears offset by the tightening effect of banking sector woes, the FOMC is likely to move to a meeting-by-meeting policy beyond May, while retaining a bias toward further policy firming.
US STOCKS: Late Equities Roundup: Two Day Rally Off April Lows Into Month End
Apr-28 19:14
Stocks look to extend late session highs Friday, adding to Thursday's largest one-day rally since January 6 (+77.75 vs. +86.75). At the moment, DJIA up 221.63 points (0.66%) at 33983.68; S&P E-Mini Future up 28.5 points (0.69%) at 4175; Nasdaq up 61.3 points (0.5%) at 12188.54.
- There appeared to be no particular headline or catalyst for the support other than a reluctance to sell into the bounce off Wednesday's low for the month (SPX 4070.25) going into moth end. That, and generally positive quarterly earnings announced in the latest cycle.
- Friday's move higher exposes key resistance and the bull trigger at 4198.25, the Apr 18 high. Clearance of this level would confirm a resumption of the uptrend that started Mar 13 and open 4244.00, the Feb 2 high.
- On the downside, key short-term support has been defined at 4068.75, the Apr 26 low. A break would be bearish.
- Meanwhile, the Federal Reserve issued it's supervisory report on Silicone Valley Bank Friday, laying blame on the banks board of directors and management but is also critical of its own supervisors that the Fed says did not appreciate the extent of SVB vulnerabilities and did not take sufficient steps to ensure the bank fixed those problems quickly enough.
US OUTLOOK/OPINION: Macro Developments Since March FOMC - Labor [2/2]
Apr-28 19:05
- Released far more recently and well into the FOMC blackout, the Employment Cost Index data showed a trend of stabilization rather than further moderation that could begin to worry the FOMC.
- Specifically, the ECI increased slightly faster than expected in Q1 at 1.16% Q/Q non-annualized (cons 1.1) after an also upward revised 1.10% Q/Q (initial 0.97%) in Q4. Wages & salaries saw similar relative strength with 1.16% Q/Q after an upward revised 1.17%, with marginally more of an uptick in its private subcomponent at 1.21% Q/Q after 1.16% Q/Q.
- In annualized terms, the 4.7% for total ECI is down from 5.5% in 1H22 but importantly unchanged from 2H22 whilst private wages & salaries actually accelerated to 4.9% annualized vs 4.7% 2H22 av.
- This rates have recently shown no sign of further moderation, in contrast to the more pronounced easing in monthly AHE data from payrolls, and in turn are stabilizing at growth rates that require unusually elevated productivity growth to be consistent with the inflation target.
