South African rand and stocks fell - dominoes

South African rand and stocks fell after U.S. jobs data. Photo by Tom Wilson on Unsplash

South African rand and stocks fell after U.S. jobs data

South African rand and stocks fell on Wednesday after U.S. data showed a decline in job openings, the lowest in about two years.

South African rand and stocks fell - dominoes

South African rand and stocks fell after U.S. jobs data. Photo by Tom Wilson on Unsplash

Reuters: South African rand and stocks fell on Wednesday after U.S. data showed a decline in job openings, while the rand weakened against the dollar. U.S. job openings data, a measure of labour demand, released on Tuesday dropped to 9.9 million in February – the lowest in almost two years.

South African rand and stocks fell

For every unemployed person in the U.S., 1.7 job openings were available. This ratio, which is highly monitored by the U.S. Federal Reserve, fell from 1.9 in January. “Our markets are echoing what we are seeing in the world’s largest economy,” said Shaun Murison, senior market analyst at IG. On the Johannesburg Stock Exchange, the blue-chip Top-40 closed 1.07% down while the broader all-share index ended the day 1.04% lower.

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Locally, the S&P Global South Africa Purchasing Managers’ Index released on Wednesday fell to 49.7 in March from 50.5 in February. A reading below 50 indicates a contraction in private sector economic activity. At 1557 GMT, the rand traded at 18.0050 against the dollar, 0.49% weaker than its previous close. The dollar index, which measures the currency against six rivals, was up more than 0.2% at 101.79. The government’s benchmark 2030 bond ZAR2030= was stronger, with the yield down 1 basis points to 9.780%.

British Pound

Reuters: The pound dipped on Wednesday, but remained close to its 10-month high against the dollar hit the day before, as improving economic circumstances have helped sterling to be one of the biggest beneficiaries of the softening U.S. currency. The pound was last down 0.27% against a broadly rebounding dollar at $1.2466, having hit $1.2525 a day earlier, its highest since June 2022. The pound rallied roughly 2% against the dollar in the first quarter of the year, the most in the G10 and outpacing gains by other major European currencies. British economic data has largely come in slightly better than feared, the latest example being strong service sector activity data, released Wednesday.

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That in turn has driven market expectations of more interest rate hikes from the Bank of England as it seeks to rein in inflation, underscored by remarks from policy makers. The BOE still cannot be sure that it has raised interest rates enough to tame inflation, Huw Pill, the central bank’s chief economist said on Tuesday. Markets are currently pricing in another 40 basis points in rate hikes this cycle. “UK rate expectations have repriced in recent weeks on the back of perceived renewed hawkishness among BoE officials,” said analysts at Manulife, setting out their expectations for markets in the second quarter.

“The BoE’s dynamic stance is offering support to the currency as policymakers adjust to domestic data as well as developments in the outlook for global rate expectations.” The pound has also been firming against the euro, though not nearly as dramatically as against the dollar. Sterling softened slightly on Wednesday, with the European common currency up 0.15% to 87.85 pence. The pound strengthened to as much as 87.3 pence on Tuesday. A break past mid March’s 87.19 would see the pound at its strongest against the euro since December.

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US Dollar

Reuters: The dollar advanced on Wednesday, recovering from two-month lows hit the previous session, as investors lightened their short positions to book profits ahead of the all-important U.S. non-farm payrolls report on Friday. The underlying trend though for the dollar remained tilted to the downside and Wednesday’s U.S. private sector jobs numbers affirmed that. The jobs data supported the view that the Federal Reserve may not need to raise rates much further. Investors are looking to Friday’s non-farm payrolls report for March, with economists polled by Reuters expecting new jobs of about 240,000. In afternoon trading, the dollar index rose 0.4% to 101.87 , led by gains against the euro, which fell 0.5% to $1.0906. Erik F. Nelson, macro strategist at Wells Fargo in London, said for now, “the bar for the dollar to keep falling is high,” noting that the greenback tracks U.S. Treasury yields, which have seen extreme moves in recent weeks. In March, U.S. two-year yields, which reflect interest rate expectations, sank nearly 74 basis points, the worst monthly fall since January 2008, which was in the thick of the global financial crisis.

“We need to see continued weakness in the data because part of the dollar weakness we’re seeing is coming from falling U.S. rates and cuts being priced from the Fed. And if the U.S. data is not going to affirm that, then the dollar could be more resilient than expected,” Nelson said. He clarified though that he remains dollar-bearish, but noted that moves in the currency will be more of a “grind lower,” instead of a straight downtrend that reflect months and months of persistent selling. On Wednesday, the ADP National Employment report showed U.S. private employers hired fewer workers than expected in March, suggesting a cooling labor market. Private employment increased by 145,000 jobs last month, while economists polled by Reuters had forecast private employment increasing by 200,000.

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The data came after Tuesday’s report showing a decline in job openings for February and on the heels of Monday’s weak U.S. manufacturing survey from the Institute for Supply Management, which also pointed to a soft employment component. Another report on Wednesday also indicated continued economic weakness, this time in the services sector. That industry slowed more than expected in March as demand cooled, while a measure of prices paid by services businesses fell to the lowest in nearly three years. The ISM’s non-manufacturing index fell to 51.2 last month from 55.1 in February, while the prices paid component declined to 59.5 from 65.6 in February, with the services sector’s employment indicator sliding as well to 45.8 from 47.6 in February. “There is plenty of evidence in the pipeline showing that disinflation is the underlying trend and part of the basis as to why the Fed is sounding ambiguous these days,” said Thierry Wizman, global FX and rates strategist at Macquarie in New York.

Cleveland Fed President Loretta Mester, a known hawk, said in an interview with Bloomberg TV on Wednesday that it was too early to know if the Fed would need to raise its benchmark rate at its next policy meeting in early May. U.S. rate futures markets are now pricing in a 55% chance of the Fed leaving rates unchanged at its next meeting, up from a 43% chance a day earlier. Market have also priced in about 85 bps cuts by the end of the year. In other currencies, the dollar posted its third daily loss against the yen, falling 0.4% to 131.15. Against the Swiss franc, the greenback was little changed at 0.9060 francs.

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Global Markets

Reuters: Asian stocks and U.S. equity futures sank on Thursday while bonds and the safe-haven U.S. dollar and Japanese yen were bid as mounting evidence of a U.S. slowdown fuelled worries for a global recession. Investors were inclined to take money off the table after recent strong gains, and with many global markets off on Good Friday, when potentially pivotal U.S. monthly payrolls data is due. Chinese blue chips eased 0.27%. Hong Kong’s Hang Seng was about flat, but tech shares on the index dropped 0.8% Japan’s Nikkei tumbled about 1%, helping to drag MSCI’s broadest index of Asia-Pacific shares down 0.8%. The Asia-wide index had surged more than 5% since mid-March to close at a 1 1/2-month high on Tuesday. South Korea’s Kospi sank 0.6%, while Australia’s equity benchmark sagged around 0.3%. U.S. Nasdaq E-mini futures pointed to a 0.45% lower restart, after the tech stock benchmark slumped 1% overnight.

Nasdaq E-mini futures pointed to a 0.45% lower restart, after the tech stock benchmark slumped 1% overnight E-mini futures for the broader S&P 500 indicated a 0.24% decline at the reopen, extending Wednesday’s 0.25% slide. Data overnight showed U.S. private employers hired far fewer workers than expected in March, adding to signs of a loosening labour market from earlier in the week. The country’s services sector also slowed more than expected, while earlier figures showed a stalling at factories as well. “Cracks have started to appear in the U.S. economic data this week, and slowdown fears are re-emerging,” spurring investors to sell riskier assets and shift to safer assets, including Treasuries and the dollar, IG analyst Tony Sycamore wrote in a client note. “It makes sense to square some risk ahead of the Easter long weekend,” he said. “All eyes are now on Friday’s non-farm payrolls release.”

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As signs have built this week for a sharp U.S. slowdown, traders have been pricing for a more dovish Fed. Money markets now see the odds of a further quarter point hike at the May meeting versus a pause as a coin toss. And 71 basis points of easing are priced by year-end. Treasury yields have fallen as a result. The 10-year note yielded around 3.30% in Tokyo, sticking close to the nearly seven-month low of 3.266% reached overnight. That helped the yen, which is highly sensitive to U.S. yields, gain against fellow safe haven the greenback. The dollar slipped 0.13% to 131.15 yen, but was higher against most other major currencies. The dollar index rose 0.12% to 101.99, continuing its bounce from a two-month low. The risk-sensitive, commodity-linked Australian and New Zealand dollars each slid about 0.3% against their U.S. peer. The euro was off 0.16% at %1.0891. Crude oil was under pressure, with West Texas Intermediate was down 57 cents at $80.04 a barrel and Brent off 61 cents at $84.38.

Published by the Mercury Team on 6 April 2023

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