ZAR: Rand Stays Softer, FRAs Slip On CPI Miss
USD/ZAR has paused a three-day decline before having the opportunity to test Jan 6 low of 18.4323, which remains a key bearish target. A break here would open up Dec 23 low of 18.2503. Meanwhile, the rate deals at 18.5250, a touch higher on the day, with bulls looking for firmer gains towards Jan 13 high of 19.2296 and Apr 23 high of 19.2696.
- The focal point this morning was South Africa's December CPI report, which revealed that the acceleration in headline inflation was smaller than expected. It quickened to +3.0% Y/Y from +2.9% prior, while core inflation unexpectedly slowed to +3.6% Y/Y from +3.7% before.
- Inflation data came out a week before the SARB is due to hold its first monetary policy meeting this year (Jan 30), with economists speculating that another 25bp rate cut might be in the pipeline. Against this backdrop, Governor Kganyago warned earlier this week that protectionist US trade policies could boost inflation and reduce the pace of monetary accommodation.
- Later today (11:00GMT/13:00SAST), Statistics SA will release November retail sales data, which will provide an update on the condition of domestic consumer demand. Consensus looks for a slight deceleration in real retail sales to +5.8% Y/Y from +6.3%. Note that the release covers the month of November, which makes it less up-to-date.
- SAGB yields have declined from the off, with South Africa's 5-year and 10-year breakeven inflation rates last seen at 4.32% and 5.39% respectively. FRAs sold off in reaction to CPI data, with the spread between 12x15 contracts and 3-month JIBAR widening to around36-37bp.
- Otherwise, the aggregate BBG Commodity Index has weakened by 0.3%, but the precious metals subindex is up by 0.2% and gold changes hands ~$6.4/oz. above neutral levels.
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EGBS: Selling Off Early, Peripherals & OATs Widen, Dec High In Bund Yield Holds
EGBs see some selling early today, although diminished liquidity heading into Christmas may be helping the moves extend.
- Some attributing the move to ECB President Lagarde remaining alert to lingering services inflation pressure. We aren’t so sure, as she also stressed increased confidence surrounding the Bank nearing its inflation target.
- German yields 2-3bp higher, curve a little steeper. 10s initially test December highs (2.322%), still nearly 20bp below their November peak.
- The hold of the Dec high in 10-Year yields helps Bunds to stabilise.
- The fact that the Bund curve is steepening also plays down the impact of Lagarde’s comments.
- Peripheral and OAT spreads to Bunds 1-2bp wider.
- 10-Year OAT/Bunds last 81bp, sticking within the multi-week range that has been in play since the lead up to the ousting of PM Barnier.
- The Elysee has said that a new government will be named later today. Franch PM Bayrou previously stated that he wanted to form one by Christmas at the latest.
- The delay (as one wasn’t named over the weekend) is probably a factor in this morning’s OAT widening, although peripherals also struggle as European equities edge lower.
- 10-Year BTP/Bunds just under 2bp wider on the day at ~117.5bp, spread set for the highest close since December 3, but remains ~50bp tighter year-to-date.
- We will detail the Tesoro’s ’25 issuance plan (released late Friday) later this morning.
MNI EXCLUSIVE: China Steel Demand Seen Falling Next Year
MNI looks at China steel demand in 2025 -- on MNI Policy MainWire now, for more details please contact sales@marketnews.com.
SILVER TECHS: Bearish Outlook
- RES 4: $35.226 - 61.8% of the 2011 - 2020 major bear leg
- RES 3: $35.167 - 2.00 proj of the Aug 8 - 26 - Sep 6 price swing
- RES 2: $33.125/34.903 - High Nov 1 / High Oct 23 and the bull trigger
- RES 1: $30.942/32.338 - 50-day EMA / High Dec 12
- PRICE: $29.774 @ 08:00 GMT Dec 21
- SUP 1: $28.748 - Low Dec 19
- SUP 2: $28.446 - 76.4% retracement of the Aug 8 - Oct 23 bull cycle
- SUP 3: $27.686 - Low Sep 6
- SUP 4: $26.451 - Low Aug 8
A bear cycle in Silver that started Oct 23 remains in play and last week’s move lower reinforces the trend condition. The metal has breached support at $29.642, the Nov 28 low. The break lower opens $28.446, a Fibonacci retracement. Note that moving average studies are in a bear-mode position highlighting a dominant downtrend. Key resistance has been defined at $32.338, the Dec 12 high. A break of this level would signal a reversal.
