Local Market Commentary
- In a statement posted on the Finance Ministry’s social account, new Finance Minister Situmbeko Musokotwane yesterday said that talks with the International Monetary Fund in Washington were “very progressive.” The minister further noted that key issues discussed were timelines and immediate steps that both sides needed to take to advance the process for a highly anticipated Extended Credit Facility programme. Note Musokotwane was accompanied by the central bank governor and met with senior IMF officials to apprise them of government plans to stabilize the stressed economy.
- On the global front, Norway is looking at hiking rates, and the BoE has warned that it could end Q.E. as early as Nov, stating that the case for rate hikes has risen. Although several growth headwinds persist, inflation has become a concern in countries around the world. Supply chain disruptions, chip shortages, high or buoyant commodity prices, and the rise in natural gas prices have translated into a general rise in inflationary pressures. The Fed has alluded to similar, so the theme of tightening monetary policies across many jurisdictions is upon us. Treasury yields are also on the rise and could have a lot further rise in the coming weeks.
- The challenge for the central banking authorities is that the rise in inflationary pressures needs to be considered against the backdrop of a weaker growth environment. Some of the data being released out of the U.S. has surprised to the downside. The Citi economic surprise index remains entrenched firmly to the downside. Yesterday’s weekly jobless claims were a case in point as they unexpectedly rose on the week to 351K, a rise of 16k compared to a week before while continuing claims rose by 181k to 2.84mn. Furthermore, the total receiv-ing benefits has also fallen now that the federal support programmes are being unwound, which means tougher times for those that have not yet found employment.
- Yesterday, U.S. Speaker of the House Pelosi and Senate Majority Leader Schumer reported that they had reached a deal to pay for Presi-dent Biden’s social spending programme. No details were given and it remains unclear whether the spending programme remains as large as $3.5trln, or whether that has been reduced to ensure all Democrats vote in favour of the spending bill. The Democrats would like to suspend the debt ceiling until the end of 2022 to facilitate the passing of this bill, but the Republicans will not agree to that. Republicans view the debt-ceiling negotiations as a means of derailing the spending bill. Therefore, it is not surprising that the White House has warned state agencies to prepare for the possibility of a government shutdown.
- In the FX markets, the Zambian Kwacha closed on the back foot yesterday and is expected to remain under mild pressure next week as demand for hard currency continues to outweigh supply. Meanwhile, some key events have passed this week that, on balance, have left the USD a little top-heavy and in need of a correction lower. For now, the USD continues to trade in a consolidative fashion, but the tech-nical charts show it to be overbought and vulnerable to a correction lower. However, the uncertainty around the Evergrande debt saga will hold that correction back and how that unfolds. Evergrande missed a payment date for its dollar debt but still have 30-days of grace before it is considered in default. That leaves investors in limbo as to whether the company will or won’t make the payment. Concerted efforts are being made to ensure that the payment is made to limit contagion damage.
Rand and International FX Commentary
- SA out for a public holiday, expect flow to be on the light side.