The recent risk-on investor sentiment was dealt a reality last week Friday after Federal Reserve Chair, Jerome Powell, warned that the current rate cut speculation is ‘premature.’ Powell emphasized that the Fed’s current tussle with inflation is not over as the FOMC maintains its stance to hold rates elevated until inflation cools further towards their 2% target. Additionally, the US GDP print for the 3Q2023 grew much more than expected with a print of 5.2%, quarter-on-quarter. The stern messaging from the Fed and a strong GDP print that supports the Fed’s expectations of a soft landing cooled down investor risk sentiment last week.
Locally, the main highlights from the week were a PPI print of 5.8%, year-over-year, in October and the latest government budget data. The National Treasury’s October main budget reported a deficit of R41.2 billion which is up roughly 1.5% from last year.
The headlining data print for the week is undoubtedly the US Non-farm payroll print. A data print which paints the picture of a robust US labour market will negatively affect risk-on investor sentiment as it will signal that the US economy can maintain the current high-interest rate levels without falling into recession. Locally the SA GDP results for the 3Q2023 will be released with expectations pointing to a year-on-year growth rate of around 2%.
The front of the line for our chart pack this week is the rand. The USD/ZAR pair drifted between the 50-day of 18.80 and the 200-day MA of 18.63 last week. The rand was robust enough to hold the pair below the 50% Fibonacci retracement level of 18.86 and the pair has created a double top above this level, which is rand-positive. For now, we wait and see which rate between 18.63 and 18.80 gives way first for further direction for the pair but given the price action last week, the rand may be allowed to pull the pair lower towards 18.10 in the final month of the year.
UK Brent Crude oil failed to hold onto levels above the 200-day MA last week following the recent disagreements among the African nations in the OPEC+ cartel. It is becoming evident that the OPEC production cuts are failing to significantly push the price of crude higher. For now, the 200-day MA level of $82 per barrel is the line in the sand for another upward trend in crude oil.
The DXY contracted for a third consecutive week last week and the main level to watch is the support level on the 61.8% Fibonacci retracement of 102.59 and the 200-day MA at 103.58. A break above 103.58 will serve as an early bottom-out signal and a possible move higher towards the 50-day MA at 105.46 while a break below 102.58 could see the dollar spiral lower towards 101.50. For now, it is too early to make a call on the dollar but the daily RSI indicator is suggestive of an oversold dollar which has me leaning towards a break above 103.58 over a break below 102.58.
