Reuters: The South African rand edged lower against a stronger dollar on Wednesday, taking global direction in the absence of local data.
South African Rand edged lower
At 1630 GMT, the rand traded at 19.0850 against the dollar, 0.3% weaker than its previous close. The dollar rose more than 0.1% against a basket of global currencies as investor appetite for riskier currencies faded after lacklustre corporate results, and as Treasury yields rose. “There are new and meaningful two-way pressures on USD/ZAR, but it seems happy at around or just over the 19.00 level,” said Rand Merchant Bank analysts in a morning briefing.
On Thursday, the investor focus will turn to producer price inflation figures, which could give clues on the health of the South African economy. Shares on the Johannesburg Stock Exchange fell, with the blue-chip Top-40 index closing 0.45% lower. South Africa’s benchmark 2030 government bond was stronger in late deals, with the yield down 4.5 basis points to 10.630%.
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U.S. Dollar
Reuters: The dollar was firm on Thursday, hovering near a one-week high as Treasury yields rose and investor appetite for riskier currencies dimmed, while the yen breached 150 per dollar to keep traders jittery about the prospect of intervention. The Japanese yen touched a fresh one-year low of 150.32 per dollar overnight and was last at 150.26. Japanese finance minister Shunichi Suzuki warned investors against selling the yen again on Thursday, saying authorities were closely watching moves. “I’m watching market moves with a sense of urgency, as before,” he told reporters at his ministry.
The closely watched 150 threshold is perceived by investors as a danger zone that may trigger intervention from Japanese authorities. Suzuki made no direct comment about the potential for intervention. U.S. GDP data due later on Thursday is a key event risk for dollar/yen, according to Carol Kong, currency strategist at Commonwealth Bank of Australia, who said a strong report may pressure U.S yields higher and result in the yen testing fresh lows. A recent surge in global interest rates is heightening pressure on the Bank of Japan to change its bond yield control next week. A hike to an existing yield cap set three months ago being discussed as a possibility, sources have told Reuters.
The Australian dollar slid to an 11-month low of $0.6276 and was last down 0.35% at $0.6287. A surprisingly high reading for inflation on Wednesday stoked expectations of a further hike in interest rates. The New Zealand dollar also touched an 11-month low of $0.5780 and was last down 0.22% at $0.5788. Benchmark U.S. 10-year Treasury yields inched higher, resuming a move toward a 16-year peak of 5.0% briefly breached on Monday. The 10-year yield was up 1 basis point at 4.964% in Asian hours on Thursday.
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Mixed U.S. corporate earnings also weighed on risk sentiment. “Markets are showing renewed signs of uneasiness with US corporate earnings results an additional source of volatility,” said Rodrigo Catril, senior FX strategist at National Australia Bank. Meanwhile, the Canadian dollar fell 0.07% versus the U.S. dollar to 1.38 per dollar after the Bank of Canada held its key overnight rate at 5.0% as expected but left the door open to more rate hikes to tame inflation. The euro was little changed at $1.0562 ahead of a policy decision from the European Central Bank later in the day.
The ECB is expected to keep interest rates unchanged at a record high, snapping a 15-month streak of hikes. It may discuss a quicker reduction of its oversized portfolio of government debt as it battles excessive inflation. “With the European economy soft and inflation easing, we expect attention will soon turn to the likely timing of rate cuts,” said CBA’s Kong. “At this stage we have the first cut pencilled in for June 2024. Soft European economic data and negative interest rate differentials between Europe and the US will likely keep a lid on euro/dollar.”
Sterling was last at $1.2097, down 0.09% on the day and is on course for a weekly decline of 0.5%. Against a basket of currencies, the dollar was at 106.58, just shy of the one-week high of 106.61 it touched on Wednesday. In cryptocurrencies, bitcoin last fell 0.04% to $34,665.00. The world’s largest cryptocurrency has surged 15% this week on the back of speculation that an exchange-traded bitcoin fund is imminent.
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British Pound
Reuters: The British pound extended the previous day’s losses on Wednesday after gloomy economic data affirmed the view that the Bank of England will likely hold rates steady when it announces its policy decision next week. Data on Tuesday showed a labour market that was loosening, while the flash reading of the S&P Global UK Purchasing Managers’ Index for the services sector fell in October to 49.2, the lowest reading since January and below the 50 threshold that separates growth from contraction.
“It’s obvious there’s some slowing momentum,” said Viraj Patel, global macro strategist at Vanda Research. “You struggle to paint a bullish picture when you have weak macro and a potentially more dovish BoE.” By 0916 GMT, the pound was down 0.2% against the dollar to $1.2132. On Tuesday it fell 0.7%, its biggest one-day drop in more than a week. Sterling was also down 0.1% at 87.21 pence per euro, in close proximity to a 5-1/2 month low of 87.40 pence per euro reached on Friday.
The BoE is now likely done with policy tightening and will leave the Bank Rate at 5.25% on Nov. 2, according to the vast majority of economists polled by Reuters. Money market traders also think UK rates have peaked, with rate cuts fully priced by the end of next year. Traders had previously priced rates peaking above 6% but a slowdown in inflation and subdued growth had markets paring back expectations.
Headline inflation held steady at 6.7% last month, having reached a 41-year peak of 11.1% in Oct. 2022, but with inflation remaining above target, analysts said it might still be too soon to completely rule out future tightening. “I’m hesitant to say the BoE is done because they are data dependent and so to make that call you need visibility on what things will look like in three months and that’s pretty tricky right now,” Vanda Research’s Patel said. “Based on the data seen so far, however, I don’t see them hiking next week.”
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Global Markets
Reuters: Asian stocks slid to 11-month lows on Wednesday, U.S. futures dropped and the dollar surged as Treasury yields spiked back toward peaks on fears that U.S. interest rates will stay high. A rebound in U.S. home sales was the latest trigger for concern in the bond market. Corporate earnings have also been mixed. Alphabet shares logged their worst session since March 2020 overnight, dropping 9.5% as investors were disappointed with stalling growth in its cloud division. MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1%. Japan’s Nikkei fell 2%. Alphabet shares slid another 2% after hours and pulled Nasdaq futures down by nearly 1%.
The benchmark 10-year Treasury yield, a bedrock for pricing risk-taking across financial markets, jumped 11 basis points overnight and traded at 4.96% on Thursday. “There is no anchor in U.S. treasuries,” said Ben Luk, Senior Multi Asset Strategist at State Street Global Markets. “If the 10-year yield doesn’t stay below 5%, then I think it’s still going to be a very choppy market for both U.S. and Asia,” he said. “Once you have more stable treasury environment, you will have a clearer earnings revision story,” he added, noting markets dominated by tech firms, which rely heavily on financing, will be vulnerable to higher rates due to borrowing costs.
Shares in Facebook parent Meta fell 4% on Wednesday and another 3% in after-hours trade after publishing results showing better-than-expected revenue but a cloudy outlook, with expenses seen topping Wall Street estimates. Australian shares fell to a one-year low, as stronger-than-expected third-quarter inflation data raised bets that the central bank might raise rates next month. The S&P/ASX 200 index retreated 0.7% to 6,854.20 in early trade, hitting its lowest level since Oct. 31, 2022.
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In the currency markets, the dollar index hit a two-week high of 106.77. The yen weakened past 150 per dollar, a level that has put traders on guard for intervention to support the Japanese currency. By 0300 GMT the yen was trading at a one-year low of 150.43 per dollar. The Australian dollar fell to an almost one-year low of $0.6271 in morning trade. The head of Australia’s central bank on Thursday said the strong third-quarter inflation report was around policymakers’ expectations, and they were still considering whether it would warrant a rate rise.
The New Zealand dollar also hit a nearly one-year low at $0.5776. In China, markets’ bounce on news that China would issue a trillion yuan ($137 billion) in sovereign debt was quickly fading away, with mainland and Hong Kong indexes winding back gains. The Hang Seng fell 0.8%. Oil prices slipped. U.S. crude dipped 0.15% to $85.26 a barrel. Brent crude fell to $90.05 per barrel. Oil prices rose about 2% on Wednesday on worries about the conflict in the Middle East, but gains were capped by higher U.S. crude inventories and gloomy economic prospects in Europe.
Gold was slightly higher. Spot gold was traded at $1983.015 per ounce. South Korea’s economy fared better than expected in the third quarter with the expansion underpinned by exports, backing the case for the central bank to keep rates on hold for the months ahead. The won fell sharply, in line with the dollar’s broad gains.
Published by the Mercury Team on 26 October 2023
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