ZAR: Rand Edges Higher, Market Participants Await Budget Speech
USD/ZAR operates near the 18.3 area, which has provided a layer of support over the few weeks. The pair last deals at 18.3506, over 500 pips lower on the session, and a clean breach of Jan 24/Feb 14 lows of 18.3022/18.2995 would open up 18.2343, the 61.8% retracement of the upleg between Dec 12 - Jan 13. Meanwhile, bulls look for a recovery towards 19.2296, the Jan 13 high.
- SAGB yields have pulled back from early highs but remain marginally above neutral levels. South Africa's 5-year and 10-year breakeven inflation rates sit at 4.64% and 5.63% respectively, hitting one-month highs.
- The composite BBG Commodity Index has added 0.3%, with the precious metals subindex last seen 0.2% better off. Gold deals ~$2.0/oz. higher on the day.
- Statistics SA will release December retail sales data at 11:00GMT/13:00SAST but the publication will likely be overshadowed by Finance Minister Enoch Godongwana's Budget Speech at 12:00GMT/14:00SAST.
- Godongwana is now expected to announce tax hikes during his budget speech, as he looks for new sources of revenue, despite firm pushback from the ANC's coalition partners.
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FOREX: FX OPTION EXPIRY
Of note:
EURUSD 1.4bn at 1.0300/1.0325.
EURUSD 2.5bn at 1.0300/1.0325 (tue).
USDJPY 1.3bn at 156.00 (tue).
AUDUSD 1.69bn at 0.6210 (wed).
EURUSD 3.24bn at 1.0295/1.0320 (thu).
- EURUSD: 1.0300 (1.02bn), 1.0325 (475mln).
- AUDUSD: 0.6185 (550mln).
- NZDUSD: 0.5660 (329mln).
- USDZAR: 18.7000 (300mln).
GERMAN DATA: German PPI Rises in December, ex-Energy Broadly Unchanged
German PPI rose to 0.8%% Y/Y in December, up from November's +0.1% Y/Y, but remains lower than consensus expectations of +1.1% Y/Y. Sequentially, PPI fell -0.1% M/M (vs +0.3% cons; +0.5% prior).
- Consistent with German CPI in December, energy deflation was less prominent than before, at -0.2% Y/Y (vs -2.4% November). This is the highest Y/Y rate since May 2023.
- That leaves ex-energy PPI broadly unchanged vs November, at 1.2% Y/Y - the rate has been hovering around that level for five months now.
- Looking at the non-energy categories, a deceleration in intermediate goods inflation stands out the most, at +0.1% Y/Y vs +0.4% in November. This comes as the trend of an acceleration in the category started to stall in September, and should, on the margin, be a positive sign regarding contained mid-term core goods CPI inflation in Germany.
- For further details see table.
GILTS: Flat Start, Syndication & Domestic Data Eyed This Week
Gilts little changed early today.
- Futures -12 at 91.55, trading in a 91.45-66 range.
- The structural trend condition in futures remains bearish, although the recent break above the 20-day EMA increases the threat to the overarching technical theme.
- Initial support and resistance at 90.68/91.96.
- Yields little changed to 1.5bp lower, front end outperforms.
- GBP STIRs still roughly in line with pre-gilt open levels, ~64bp of cuts priced through year-end.
- On the lookout for the syndicated tap of the 4.375% Jan-40 gilt. Bookrunners have indicated this will likely be tomorrow’s business, in line with our own expectation.
- Much of the weekend domestic headline flow centred on political posturing ahead of U.S. President Trump’s inauguration.
- That event dominates the macro calendar today.
- UK labour market data is due tomorrow, our full preview will be out later today, greater colour available in the pre-gilt open STIR bullet.
