Daily Market Report 7 Oct
Key Market Drivers:
- US Employment Report (September): The US jobs report was surprisingly strong, with markets now pricing out any further 50bp rate cuts this year. However, the data may have understated vulnerabilities, especially given recent layoff announcements.
- ECB Policy Guidance: ECB policymakers are expected to implement another rate cut in October due to below-target inflation. Markets are fully pricing in rate cuts for October and December.
- Middle East Conflict: Israel launched aerial and ground attacks in Gaza ahead of the one-year anniversary of Hamas attacks. The conflict remains a significant geopolitical risk for markets, particularly with the potential for escalation involving Iran.
Key Economic Indicators:
- FOMC Meeting Minutes (upcoming): The minutes from the September meeting will provide insights into the Fed’s aggressive 50bp rate cut and could reveal how sensitive the Fed is to economic weakness.
- US CPI (upcoming): September’s CPI data, expected on Thursday, will provide further signs of disinflation, influencing future rate cut expectations.
- US Consumer Sentiment: The preliminary October University of Michigan consumer confidence index is expected to show a marginal improvement, although concerns about unemployment are growing.
South African Economic Highlights:
- ZAR Performance: The ZAR had a difficult week, losing ground against a stronger USD. However, despite the setback, the ZAR remains resilient, especially with domestic inflation trending lower and rate-cut expectations intact. Current levels suggest the ZAR has found some support.
- Mining and Manufacturing Data (upcoming): This week’s SA mining and manufacturing production figures will offer insights into the strength of SA’s productive sectors, especially as load shedding has ended.
Market Movements:
- Global Currencies: The USD maintained its strength after the robust US labor data, driving losses in the EUR and GBP. Meanwhile, the USD/JPY hit its highest levels in years, boosted by US job data and contrasting monetary policies in Japan.
Market Insight:
- Fixed Income: US non-farm payroll data strengthened US Treasury yields, and domestic bond yields followed suit, responding to the combination of rising US yields and a weaker ZAR. The spread between SA 10-year bonds and their US counterparts remains wide, but bond markets are now in a defensive position awaiting new catalysts, particularly US CPI data this week.
Energy and Commodities:
- Oil: Prices surged last week, marking their largest weekly gains in over a year due to escalating Middle East tensions. However, US President Biden’s discouragement of Israeli strikes on Iranian oil facilities helped temper gains.
- Soft Commodities: The UN’s world food price index saw its largest increase in 18 months, driven by a sharp rise in sugar prices due to crop concerns in Brazil and export restrictions in India.
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