South African Rand bolstered by U.S. inflation; stocks end lower

Reuters: The South African rand bolstered modestly against the dollar on Wednesday as the dollar fell globally on data showing cooler-than-expected U.S. headline inflation in March.

South African Rand bolstered against dollar

Johannesburg-listed stocks closed slightly lower. U.S. consumer prices rose 0.1% in March, compared to expectations for a 0.2% increase and a 0.4% rise in February. Despite the smaller-than-predicted increase, economists said underlying inflation pressures mean the Federal Reserve will probably still raise interest rates again next month. At 1550 GMT, the rand traded at 18.3750 against the dollar, about 0.1% stronger than its previous close. The dollar was down around 0.5% against a basket of global currencies. The risk-sensitive rand is highly sensitive to shifts in the outlook for U.S. inflation and monetary policy.

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On the Johannesburg Stock Exchange, the blue-chip Top-40 index closed down 0.4% and the broader All-share index ended the day 0.3% lower, with the bulk of the losses coming before the U.S. inflation figures were released. Global stock markets were boosted by the U.S. inflation figures, and South Africa-based traders said they should support local equities also. “I think JSE market investors would be relieved the efforts by the Federal Reserve to tame inflation seem to be working,” said Greg Davies, head of wealth at Cratos Capital. South Africa’s benchmark 2030 government bond traded stronger, the yield down 3.5 basis points at 9.905%.

British Pound

Reuters: Sterling held steady against the dollar and dipped against the euro on Wednesday as traders waited for key U.S. inflation data as well as comments from Bank of England governor Andrew Bailey. The pound was flat at $1.24155, not far off a 10-month high of $1.2525 hit early last week, as currency markets broadly were quiet ahead of the release of the U.S. consumer price index for March. The data will be a major input for Federal Reserve policy markers as they debate whether to raise U.S. rates further at their meeting in March. More Britain-specifically, Bailey is due to speak later, with traders keeping their eyes out for guidance on whether the BOE is ready to pause its rate hike cycle.

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Market pricing currently indicates around a 75% chance of one more 25 basis point hike. “GBP/USD can be sensitive to comments from BoE officials on the outlook for inflation and monetary policy because the BoE’s tightening cycle is likely near its end,” said Kristina Clifton, FX strategist at Commonwealth Bank of Australia. However she added that U.S. CPI and its impact on the dollar were likely to be the main driver for the pound against the dollar. Better-than-feared economic data this year has helped the pound be the best G10 performer against the U.S. dollar both simply because of improved economic prospects but also because it means the Bank of England cannot rely on a slowdown to rein in inflation. The euro rose 0.22% against the pound to 88.05 pence, its strongest in just over a week.

US Dollar

Reuters: Asian stocks struggled on Thursday, dragged down by tech and property selling in Hong Kong, while the dollar was under pressure as softening U.S. inflation seemed to suggest the Federal Reserve’s rate hike cycle was nearing its end. Early in the Asia day the euro hit a 2-1/2 month top at $1.10. Investors are positive on Europe, where blue-chip stocks hit a two-decade high on Wednesday, and reckon Europe’s central bankers will need to be more hawkish longer than their U.S. counterparts to rein in rising prices. U.S. and European futures nudged up 0.1% and 0.2%, respectively. The Aussie dollar rose 0.2% on the back of surprise surges in both Chinese exports, which zoomed 14.8% compared with last March, and domestic Australian jobs. MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 0.3%, largely pressured by 1% drops in Hong Kong tech and China property stocks. China’s major stock indexes were slightly in the red, with analysts saying an unexpected rise in March exports was unlikely to be sustained given softening global demand.

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Tech stocks slid after the Financial Times reported SoftBank was selling down its Alibaba stake, on the heels of Netherlands’ investor Prosus flagging some selling of its Tencent stake on Wednesday. “It was a cluster of bad news,” said Wong Kok Hoong, head of equity sales trading at Maybank in Singapore. “Interestingly, though, SoftBank trimming, may lift the final overhang on Alibaba shares,” he said, which could encourage buying. Alibaba shares were down more than 5% at one stage, though pared losses to sit 2.4% lower at lunchtime. SoftBank shares rose 0.2%, in line with the broader Japan market which is on a five-session winning streak in the afterglow of Warren Buffett increasing Japan exposure. A 50% collapse in the stock price of property developer Sunac China, which resumed trade in Hong Kong after a year-long suspension, put pressure on a sector that is attempting to steady. Sunac is in the midst of a debt restructuring.

Two-year Treasury yields were steady at 3.985% in Asia after dropping more than 8 basis points on Wednesday when data showed U.S. consumer prices barely rose in March. The annual 5% headline rise for U.S. inflation was the smallest since May 2021 and down from 9.1% last June. Though with core CPI sticky at an annual 5.6% and minutes from last month’s Fed meeting showing participants cautious about credit tightening in the wake of banking sector wobbles in March, markets are nervous. British monthly GDP is due later on Wednesday, as are Tesco earnings and U.S. producer prices. However, given the Fed’s concern about banks, much of the week’s focus will fall on earnings from Citi, Wells Fargo and JP Morgan Chase due on Friday. “It is an ‘if’ monetary policy world, that is, wait and see about banking and financial conditions,” said Sam Rines, managing director at research firm CORBŪ in Texas. “Banking sector issues are explicitly part of the reaction function now.”

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Goldman Sachs’ chief economist Jan Hatzius sounded upbeat, noting risks of an outright banking crisis have declined sharply since no further banks have blown up since the weekend of the collapse of Silicon Valley Bank a month ago. Still, there is pressure and warning signs, particularly for regional lenders, with Rines pointing to the Bank of South Carolina which noted “precipitous increases” in deposit costs and thin margins in its first-quarter earnings this week. Elsewhere, oil prices held sharp gains made in the wake of the inflation data, with Brent crude futures mostly steady at $87.02 a barrel. Gold held at $2,018 an ounce. Bitcoin , which has this week broken above $30,000 for the first time since mid-2022, hovered at $30,008.

Global Markets

Reuters: Asian stocks struggled on Thursday, dragged down by tech and property selling in Hong Kong, while the dollar was under pressure as softening U.S. inflation seemed to suggest the Federal Reserve’s rate hike cycle was nearing its end. Early in the Asia day the euro hit a 2-1/2 month top at $1.10. Investors are positive on Europe, where blue-chip stocks hit a two-decade high on Wednesday, and reckon Europe’s central bankers will need to be more hawkish longer than their U.S. counterparts to rein in rising prices. U.S. and European futures nudged up 0.1% and 0.2%, respectively. The Aussie dollar rose 0.2% on the back of surprise surges in both Chinese exports, which zoomed 14.8% compared with last March, and domestic Australian jobs. MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 0.3%, largely pressured by 1% drops in Hong Kong tech and China property stocks. China’s major stock indexes were slightly in the red, with analysts saying an unexpected rise in March exports was unlikely to be sustained given softening global demand.

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Tech stocks slid after the Financial Times reported SoftBank was selling down its Alibaba stake, on the heels of Netherlands’ investor Prosus flagging some selling of its Tencent stake on Wednesday. “It was a cluster of bad news,” said Wong Kok Hoong, head of equity sales trading at Maybank in Singapore. “Interestingly, though, SoftBank trimming, may lift the final overhang on Alibaba shares,” he said, which could encourage buying. Alibaba shares were down more than 5% at one stage, though pared losses to sit 2.4% lower at lunchtime. SoftBank shares rose 0.2%, in line with the broader Japan market which is on a five-session winning streak in the afterglow of Warren Buffett increasing Japan exposure. A 50% collapse in the stock price of property developer Sunac China, which resumed trade in Hong Kong after a year-long suspension, put pressure on a sector that is attempting to steady. Sunac is in the midst of a debt restructuring.

Two-year Treasury yields were steady at 3.985% in Asia after dropping more than 8 basis points on Wednesday when data showed U.S. consumer prices barely rose in March. The annual 5% headline rise for U.S. inflation was the smallest since May 2021 and down from 9.1% last June. Though with core CPI sticky at an annual 5.6% and minutes from last month’s Fed meeting showing participants cautious about credit tightening in the wake of banking sector wobbles in March, markets are nervous. British monthly GDP is due later on Wednesday, as are Tesco earnings and U.S. producer prices. However, given the Fed’s concern about banks, much of the week’s focus will fall on earnings from Citi, Wells Fargo and JP Morgan Chase due on Friday. “It is an ‘if’ monetary policy world, that is, wait and see about banking and financial conditions,” said Sam Rines, managing director at research firm CORBŪ in Texas. “Banking sector issues are explicitly part of the reaction function now.”

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Goldman Sachs’ chief economist Jan Hatzius sounded upbeat, noting risks of an outright banking crisis have declined sharply since no further banks have blown up since the weekend of the collapse of Silicon Valley Bank a month ago. Still, there is pressure and warning signs, particularly for regional lenders, with Rines pointing to the Bank of South Carolina which noted “precipitous increases” in deposit costs and thin margins in its first-quarter earnings this week. Elsewhere, oil prices held sharp gains made in the wake of the inflation data, with Brent crude futures mostly steady at $87.02 a barrel. Gold held at $2,018 an ounce. Bitcoin , which has this week broken above $30,000 for the first time since mid-2022, hovered at $30,008.

Published by the Mercury Team on 13 April 2023

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