South African rand hit new record low low in early trade

Reuters: The South African rand hit a fresh record low in early trade on Thursday, extending a hammering from May on the back of souring investor sentiment. The rand fell as low as 19.9075 against the U.S. dollar, worse than the previous record low of 19.8600.

South African rand hit a new low

At 0727 GMT, the rand traded at 19.8900, more than 0.8% weaker than its previous close. “The rand remains entrenched in the R19.50/R20.00 range, but short-term risks remain for a breach of the R20.00 level as investor outflows continue and exporter inflows remain limited,” Andre Cilliers, Currency Strategist at TreasuryONE, said.

ALSO READ: Top 3 richest South Africans in the world – 2 June 2023

Worsening rolling blackouts and U.S. allegations that South Africa had supplied arms to Russia last year have left a sour taste in investors’ mouths. This sent the currency into a tailspin in May where it lost over 7% against the greenback. The dollar was last trading 0.27% stronger against a basket of global currencies. Investors were relieved when, overnight, the U.S. House of Representatives passed a bill to suspend the $31.4 trillion debt ceiling. Failure to pass could have tipped the world’s biggest economy into a recession.

The bill is now headed to the Senate where the legislation could be enacted before the weekend. “This will reduce the degree of risk aversion and potentially trigger a move back towards riskier investment destinations,” ETM Analytics said in a research note. Locally, investors will also take cues from the Absa Purchasing Managers’ Index survey of manufacturing activity, which will be published at 0900 GMT. Shares on the Johannesburg Stock Exchange were last trading up, with the blue-chip Top-40 index climbing more than 1%. South Africa’s benchmark 2030 government bond was weaker in early deals with the yield up 4 basis points to 11.340%.

ALSO READ: Newspaper front pages from around the world, 2 June 2023

US Dollar

Reuters: The U.S. dollar wallowed near a one-week low versus major peers on Friday, on course for its worst week since mid-January, amid strengthening views that the Federal Reserve will forgo an interest rate hike this month. The U.S. Senate’s passage of a bill to suspend the debt ceiling and avert a disastrous default also removed a pillar of support for the dollar, which had paradoxically been a key beneficiary because of its safe-haven status. The Australian dollar surged after an increase in the minimum wage stoked bets for the central bank to raise rates again next week. The U.S. dollar index , which measures the greenback against a basket of six rivals, weakened 0.06% to 103.48 in Asian trading, extending a 0.62% slide from Thursday, its worst day in almost a month. For the week, the index is on course to lose 0.73%.

Philadelphia Fed President Patrick Harker said on Thursday that “it’s time to at least hit the stop button for one meeting and see how it goes,” referring to the June 13-14 meeting. A day earlier, Fed Governor Philip Jefferson had said that “skipping a rate hike at a coming meeting would allow the committee to see more data before making decisions about the extent of additional policy firming.” Some softness in U.S. manufacturing data overnight supported the case for a pause, although jobs figures continue to print hot, putting even more focus than usual on the monthly non-farm payrolls report later in the day. “The key is non-farm payrolls tonight, which could determine if there’s going to be a hike in coming months, whether that’s in June or July,” said Shinichiro Kadota, senior currency strategist at Barclay in Tokyo. “It’s really data-dependent at this point,” he added. “Maybe they hike in June, maybe in July, or maybe they don’t hike any more.”

ALSO READ: US government ‘furious’ with Brigety over Russia arms supply allegations – reports

Money markets currently see about 29% odds of a hike, down from near 70% earlier in the week. The dollar ticked down 0.13% to 138.65 yen , after dropping to as low as 138.44 on Thursday for the first time since May 24. The pair tends to track U.S. long-term Treasury yields , which were at 3.61% in Tokyo after dipping overnight to the lowest since Nov. 18 at 3.57%. The euro was about flat at $1.0767, after reaching a one-week high of $1.07685 in the previous session, when European Central Bank President Christine Lagarde gave the shared currency a boost by saying further policy tightening was necessary. Meanwhile, the Senate passed a bill to lift the government’s $31.4 trillion debt ceiling late on Thursday, getting it ready for President Joe Biden to sign well ahead of a Monday deadline. “This clears the last residual bound to everything getting done and dusted by Monday’s X-date,” said Ray Attrill, head of foreign-exchange strategy at National Australia Bank. “At the margin, it plays with the grain of the more risk positive view in the market, which is proving to be U.S. dollar negative.”

The Aussie rose as much as 0.61% to $0.6613, its strongest since May 24. The primary driver was an announcement by Australia’s independent wage-setting body that it would raise the minimum wage by 5.75% from July 1. Traders currently lay about one-third odds on a quarter-point rate hike on Tuesday. Even if a hike doesn’t happen next week, markets expect a hike by fall. “This has seen market pricing for the RBA lift materially,” said NAB’s Attrill. “That’s why Aussie is the outperformer today.”

ALSO READ: Fuel price LATEST: Last Friday before petrol, diesel changes

British Pound

Reuters: The pound edged up on Thursday, taking advantage of a dip in the dollar after Federal Reserve officials indicated the central bank might skip a rate hike this month, while UK data painted a picture of an increasingly gloomy economy. Data from the Bank of England showed British lenders approved fewer mortgages in April than in March and the value of new loans also fell, highlighting the softness in the housing market. A separate report earlier from mortgage lender Nationwide showed UK house prices fell by the most since 2009 in the 12 months to May, and the country’s housing market faces further headwinds after a recent jump in borrowing costs. Sterling was last up 0.2% against the dollar at $1.2467 and flat against the euro at 85.90 pence, close to its strongest in six months.

The pound fell by 1% against the dollar in May, its largest monthly slide since February’s 2.8% loss, but it’s still up 3.1% so far in 2023. Against the euro, sterling gained 2% last month – the most in a month since last July. But analysts say this apparent show of strength is something of a mirage. Britain has the slowest growth and the highest inflation within the Group of Seven economies. The BoE, which many believe was too slow to raise interest rates, will probably have to raise rates again this month, which in theory should give the pound an edge against the dollar. UK inflation fell to 8.7% in April from a peak of 11.1% in October, while U.S. inflation is down to 4.9%, from 9.1% last June – when UK inflation was at 9.4%.

ALSO READ: E-hailing services blame government for attacks at Maponya Mall

Since then, the BoE has raised rates by 350 basis points to 4.50%. The Fed, meanwhile, took just seven months from that time to raise rates by the same amount and U.S. rates are at 5.25%. “If UK inflation remains stubbornly high on a relative basis, I see more downside than upside sterling potential — on the view that currencies will be rewarded when their respective central banks have more success in bringing inflation down. A failure to do so carries too many economic, fiscal, and balance of payment negatives,” BMO global currency strategist Stephen Gallo said.

Indeed, BoE policymaker Catherine Mann said on Wednesday the UK had a bigger inflation problem than either the United States or the euro zone. Mann said core inflation was showing signs of being kept high by British businesses’ ability to push through price rises, as well as increased wages, while headline inflation had also been slower to fall back towards the core rate than elsewhere. “The gap between headline and core CPI that I have in my country is more persistent than the gaps that we see in either of my neighbours, the U.S. or the euro area,” Mann said in a policy discussion hosted by Swiss asset manager Pictet.

ALSO READ: BREAKING: Rand crashes to record low amid SA-Russia concerns

Global Markets

Reuters: Asian stocks jumped on Friday on increasing expectations that the Federal Reserve might stand still on rates and after the U.S. Senate passed legislation lifting the government’s $31.4 trillion debt ceiling, avoiding a catastrophic default. MSCI’s broadest index of Asia-Pacific shares outside Japan surged 2% and was on course for its biggest one-day percentage gain since early January. The exuberant mood looked set to continue in Europe, with Eurostoxx 50 futures up 0.45%, German DAX futures up 0.49% and FTSE futures 0.18% higher. E-mini futures for the S&P 500 rose 0.20%. The Senate voted 63-36 to approve the bill that was passed on Wednesday by the House of Representatives, as lawmakers raced against the clock to avert what would have been a first-ever default. The Treasury Department had warned it would be unable to pay all its bills on June 5 if Congress failed to act. “I think it’s a bit of relief but that’s about it,” said Shane Oliver, head of investment strategy at AMP in Sydney. “I think it’s now time for markets to move on to other things.”

Also lifting risk sentiment was changing expectations of the Fed’s monetary policy, with traders steadily dialling back their bets on the central bank raising interest rates again this month. Markets are now pricing in a 20% chance of the central bank hiking by 25 basis points compared to a 50% chance a week earlier, according to the CME FedWatch tool. Data overnight showed the number of Americans filing new claims for unemployment benefits increased modestly last week and private employers hired more workers than expected in May, pointing to continued labour market tightness. “The market’s focus is shifting to the economic front and Fed’s decision on rates now,” said Tina Teng, markets analysts at CMC Markets. The spotlight will be on the Labor Department’s closely watched unemployment report for May, due later on Friday. The data will help determine whether the Fed sticks with its aggressive rate hikes.

ALSO READ: Top 10 richest people in the world – 2 June 2023

Dovish comments from Fed officials through the week have helped embolden Fed pause hopes, with Philadelphia Federal Reserve President Patrick Harker saying U.S. central bankers should not raise rates at their next meeting. “It’s time to at least hit the stop button for one meeting and see how it goes,” Harker said. AMP’s Oliver said the prevailing sentiment now is that there will be a pause in June and that’s helped markets. “If the payroll numbers are on the high side, it will cause the market to question whether there’ll be a pause or not.” China shares, which have been dragged lower in past few weeks by worries over a sputtering post-pandemic economic recovery, also surged. The Shanghai Composite Index was up 0.76% while Hong Kong’s Hang Seng index spiked 3.6% higher, set for its best day in three months. Australia’s S&P/ASX 200 index rose 0.42%, while Japan’s Nikkei was 1% higher, continuing its hot run.

U.S. Treasury yields fell. In Asian hours, the two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was up 0.8 bps at 4.349%, having slipped around 5 bps on Thursday. In the currency market, the dollar index , which measures the U.S. currency against six major peers, was flat after dropping 0.6% overnight. The Japanese yen weakened 0.11% to 138.93 per dollar, while Sterling was last trading at $1.2527, up 0.02% on the day. The Aussie rose as much as 0.61% to $0.6613, its strongest since May 24. The primary driver was an announcement by Australia’s independent wage-setting body that it would raise the minimum wage by 5.75% from July 1. The bullish sentiment helped push oil prices higher, with U.S. crude up 0.53% to $70.47 per barrel and Brent at $74.67, up 0.53% on the day. Markets are also weighing the likelihood of price-supportive OPEC+ production cuts over the weekend.

Published by the Mercury Team on 2 June 2023

For more news on global and local market performance, follow our business and finance page.