Last week we saw the markets catching the tailwinds of good prints from the US non-farm payroll numbers. The US dollar was on the front foot for most of last week, touching the 1.17 level against the Euro. However, the US dollar started to lose some ground as Covid cases are gripping headlines again.
The rise of the Delta variant has caused concern in the world, with many countries imposing further lockdowns and one of the busiest ports in the world, China, partially shut down due to one positive COVID case. As a result, some of the optimism that was placed on world recovery is on the back foot for now.
Below is a breakdown of the number of cases reported in the world as of the end of last week.
We have seen a run to safety in the short term, with Gold rebounding from the massive loss, down by around 10% from the previous week. However, US treasuries were falling last week, and we have not seen the run to the US dollar as we believe that the market is seeking out yield again. We believe that any yield-seeking behaviour is more short term, as a prolonged strain on global growth is normally US dollar positive. See below the US 10Y treasury yields rallying from 1.38% to 1.27% from the back end of last week.
The main feature of the calendar this week is the FOMC minutes, with the market looking at any clues as to the thinking of the Fed when it comes to possible taper and rate hike talks. As we have seen of late, the Fed is the major market mover at the moment so expect more of the same. We also have the US retail figures on Tuesday, and although we don’t expect this to move the market, it will give us some insight as to the robustness of the US consumer in the face of the pandemic.
On the South African side, we have seen the Rand trading between R14.50 – R14.90 over the last couple of weeks, and we believe that trend will continue as we head into the FOMC meeting. The key level for the Rand at the moment is R14.90, as we have seen the currency bumping its head at this level a couple of times. This week’s biggest data release out of South Africa is the CPI number, which is expected to print at 4.8%, well within the SARB target of 3%-6%. A middle of the road number will not place any pressure on the MPC of the SARB to act on the interest rate front.