Short week that packs a punch

Posted on by Maria Joubert

 

After the long weekend, we are in for a short but very eventful week. This is the week we have been waiting for since the inflation data out of the US last month, with the FOMC meeting out later today. A 25-basis point hike has been baked into the market, but most of the attention will be focused on the Fed Chair’s press conference following the announcement. The market will be looking to any indication that the Fed could give to a possible Fed pivot later on in the year, or any news on pausing interest rate hikes.

Last Fed Hike?
Picture1-May-03-2023-10-14-48-3502-AM

There are a multitude of factors that the Fed has to be cognisant of currently in the US economy. There have been another couple of banking hiccups popping up in the last week or so, which has placed some pressure on the US dollar, while the JOLTs (job openings) number came in lower than expected. This has sent a slight warning of a slowdown in the US economy, which has not been good for risky assets like the stock markets and EM currencies.

The US non-farm payroll number is out on Friday, where there could be volatility happening as the non-farm number has got a lot of market-moving ability of late. Should the number show a significant decline, the alarm calls of the recession could be louder, which in turn could see risky assets under pressure.

Euro inflation slowing
Picture2-May-03-2023-10-15-27-3502-AM

Other events this week are centred around the ECB interest rate decision, where they are expected to raise rates by 25 basis points. We have seen the market moving more toward the euro as they are expected to hike rates longer than the US, and the market sees higher yield for longer in the Eurozone as they expect the Fed to start cutting rates by the end of the year. Eurozone Core inflation has slowed for the first time in almost a year which could play on the ECB’s mind going forward.

Rand staying firmly

On the rand front, local barriers to further Rand strength are firmly entrenched, with the rand staying firmly in the R18.00/50 range for the 11th week in a row. This is despite the US dollar on the back foot, and we have seen the rand crosses spiralling as the rand has not followed other EM currencies stronger against the US dollar. This week will be key as to whether the rand could keep between the range as we have been testing the upper end of the range at the start of the week.