Weekly market report by Andre Botha,
Senior Currency Dealer at TreasuryONE
Central Banks will you please stand up
The last few weeks of September certainly had a couple of events that would grab everybody’s attention. On the local front, we had the MPC decision and the new stimulus plan that was broadly unveiled last week by President Ramaphosa. Furthermore, as we were sitting around our braais yesterday, China cancelled a proposed meeting with the US regarding the trade situation between the two countries. Moreover, tomorrow we will see the US Fed interest rate decision.
Starting off with the MPC decision from the SARB last week, we saw the MPC was only one vote away from hiking interest rates. The fact that the MPC did not raise interest rates in the face of peers hiking interest rates shows the prudent nature of the SARB as it will not resort to quick fixes to protect the Rand and sees growth as its main priority. Saying that the MPC did state that should inflation start to creep up further they will act to curb inflation. Pressures from petrol price will undoubtedly impact, and we could see a hike in rates at the next MPC meeting should things stay as they are.
In between the next MPC meeting in November we have the small matter of the mid-term budget speech to come. The emphasis on the speech has increased with President Ramaphosa’s stimulus plan having much to do with reallocating budgets from certain sectors to inspiring growth sectors. The President has identified, agriculture, tourism and infrastructure spending as the low hanging fruit that could get the economy started. However, the shift in the budget will be exciting and will be keenly watched by the market that will surely signal its approval or disapproval with the direction the Rand will move after the budget speech.
Moving further afield, to the well-beaten path of the US-China trade war, where China cancelled a meeting between them and the US. The US imposed 10% tariffs on roughly $200 billion in Chinese goods, yesterday morning. In the face of further tariffs, the Chinese officials said there would be no negotiations until the threat of new tariffs is off the table. It surely seems that these talks will continue to be protracted and it might be a case of who will flinch first. This will continue to weigh on market sentiment and the more stringent the talk between the two countries the more it could induce volatility. The US dollar has also started to show some weakness the longer the “trade war” continues and we have seen the dollar index slipping below 94.00.
The main act this week will be the FOMC interest rate decision tomorrow. The market has already assumed that the Fed hike rates by 25 basis points. This will make the effect of the actual rate hike negligible on the market, but the flesh on the bone would be the Fed’s outlook for further rate hikes for the rest of the year and on to 2020. The expectations are that there could be another rate hike in December with three more in 2019. Any hint of deviation from the much-vaunted path could see knee-jerk reactions in the market.
With markets taking last week in their stride where we have seen the Rand tracing back from the R15.00 handle we expect this week to be one of consolidation and we could see the Rand trading in tight ranges with a slight bias to Rand strength due to the US dollar on the back foot.
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