ZAR: Rand Extends Gains, USD/ZAR Approaches Support Zone Near 17.5
USD/ZAR has now virtually wiped out gains registered around the turn of the month and last trades at 17.5313, shedding around 600 pips only this morning. The pair hovers above the 17.5 figure, which marks the area which supported price action in July. A break below there would support the bearish case. Meanwhile, bulls look for a rebound towards Aug 1 high of 18.3607.
- SARB Governor Kganyago said that lowering the inflation target to +3% Y/Y would improve South Africa's risk profile and help dampen price volatility. He also said that it would allow the central bank to 'aim for a neutral policy rate of something more like 5.25%' as opposed to the current estimate of around 7.25%.
- South Africa and the US clashed again over a human rights report released by the Department of State, which accused Pretoria of persecuting Afrikaner farmers.
- SAGBs have firmed alongside US Tsys. South Africa's 5-year breakeven inflation rate has slipped to 4.63%, with the 10-year rate last sitting at 4.62%.
- The BBG Commodity Index is little changed on the day; the precious metals subindex has added 0.6%. Gold changes hands ~$12.8/oz. higher.
- SACCI Business Confidence will be out at 10:30BST/11:30SAST. Retail sales will follow at 12:00BST/13:00SAST.
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OPTIONS: Sizeable Strikes in EUR/USD Could Contain Intraday Strength
Larger FX options rolling off at the cut today include some sizeable strikes in EUR/USD that could contain any intraday strength, while EUR/GBP and AUD/USD also see smaller, but very close-to-market interest:
- EUR/USD: $1.1600-05(E1.5bln), $1.1615-25(E1.6bln), $1.1650(E1.2bln), $1.1700(E853mln), $1.1725-40(E2.3bln) $1.1800($1.5bln)
- GBP/USD: $1.3590-05(Gbp565mln)
- EUR/GBP: Gbp0.8650(E581mln), Gbp0.8695-00(E882mln)
- AUD/USD: $0.6560(A$631mln)
- USD/CAD: C$1.3660-75($527mln)
ECB VIEW: UBS Drops Call For July Cut
UBS no longer expect the ECB to cut rates by 25bp later this month.
- They now look for this cut to be delivered in September.
- They think this will be the final cut of the easing cycle and note that their call for a July cut was “firmly anti-consensus since the ECB meeting on 5 June, but we had maintained our dovish expectation amid concerns that the U.S.-EU trade negotiations might be overshadowed by new tensions around early/mid July, when previously declared moratoria expired. But we had been clear that our call for a July cut would no longer be tenable if either an U.S.-EU trade agreement or an extension of the negotiations were to ensue. This now seems to be the case”.
- They note that their call for a September cut “is based on (1) the likely disinflation path over the coming quarters, with headline inflation easing to 1.6% y/y or even less in Q126, (2) the strong euro (which recently prompted the ECB to start verbal interventions), and (3) the likely growth slowdown resulting from U.S. tariffs”.
EQUITIES: An Unusually Busy Start to Quarterly Earnings Season
As noted above, quarterly earnings season kicks off in earnest today, and it's an unusually busy start to the quarter. 9.4% of the S&P 500's market cap is set to report, with the usual early focus on big banks and financials. Our full quarterly earnings schedule found here, including EPS, revenue expectations and full timings: https://mni.marketnews.com/44tWRA8
Highlights are:
- TUES: JP Morgan, Citigroup, BNY Mellon, Wells Fargo, Blackrock
- WEDS: Johnson & Johnson, Bank of America, Morgan Stanley, Goldman Sachs
- THURS: General Electric, Netflix, PepsiCo
- FRI: American Express, 3M, Charles Schwab
Tariffs remain a key buzzword in corporate reports. Heavy industry including General Electric, Snap-On and 3M which be watched for possible impacts, Markets will be particularly focused on any signs of frontloading of corporate purchases, the rate at which firms will passthrough costs to the consumer, and the expected impacts of tariffs on the bottom-line for consumer staples.
