Weekly Market Outlook: 05 June 2023

Welcome to the first installment of Markets-a-look-ahead as we kick off the second half of the year (2H2023). Before we look ahead to the important events on this week’s economic calendar let’s backtrack and review the week that was.

The headlining event is undoubtedly the end to the monthslong political battle in Washington. President Biden signed the Fiscal Responsibility Act on Saturday which will suspend the US $31.4 trillion debt ceiling for 19 months. The compromise legislation negotiated by Biden and House Speaker Kevin McCarthy passed both houses of Congress with bipartisan support this week, averting a potential default on the nation’s financial obligations. Market participants were expecting this outcome and coupled with Friday’s robust US non-farm payroll print, equity markets booked sizable gains this past week. US non-farm payrolls for the mame in at 339 thousand, significantly higher than the expected print of 180 thousand and April’s print of 294 thousand additional jobs.[1]

The headlining event for this week, from a local SA point of view, is Tuesday’s release of the SA GDP results for 1Q2023. SA has lately been on the receiving end of some bad months of May and a strong GDP print could bring some much-needed relief for the South African markets. The GDP results are expected to come in at 2.2%, year-on-year, versus the disappointing growth of 0.9% growth recorded for the fourth quarter of 2022 (4Q2022).

Zooming out and turning our attention to the international landscape, the Eurozone and Japan will also release their latest GDP results. Additionally, some key statistics will be released from China which include updates on China’s trade balance as well as their CPI and PPI for May.

 Let’s dive into the macro charts!

First and foremost, the US dollar index. Since hitting a low of 100.804 in April, the DXY has climbed roughly 3% and the current yearly high of 105.923 now looks to be firmly in the crosshairs of the DXY. The main resistance rate in the way of the DXY is the 61.8% Fibonacci retracement rate of 103.937 but a confirmed break above this level will allow the DXY to climb to the yearly high rate which coincides with the 200-day MA rate currently at 105.582.  The key support to keep your eye on is the 50-day MA currently sitting at 102.377. In terms of technical indicators, the daily MACD is still holding a buy signal while the RSI is creeping back to overbought zones which could cool the dollar’s current red-hot momentum.

[1] The non-farm payroll (NFP) report is a key economic indicator for the US and is its most comprehensive employment statistic. The non-farm payrolls measures the change in the number of people employed during the previous month, excluding the farming industry.

Turning our attention to the US indices, clearly see that markets have shaken off the possible global economic recession fears…

The SPX has climbed roughly 22% since touching the lows of $3,488.28 back in October 2022. Off the back of the positive US data, the SPX managed to close above the critical 61.8% Fibonacci retracement level of $4,259.16. For now, the index is supported by the 50-day MA level of $4,121.67. The RSI technical indicator is however drifting higher towards the overbought zone so we could see a re-test of the 50-day MA if the red resistance zone holds its ground.

Similarly, the NDX has been on a rip-roaring run since October 2022 which has seen the tech index record roughly 36% gains year-to-date. These sizable gains were primarily driven by investor enthusiasm surrounding the developments of AI technology. However, The RSI suggests that the index is heavily overbought, which is suggestive of a possible pullback. The main support levels to watch are at $14,000 and the 50-day MA level is at $13,289.

Looking over at the battered rand, the current risk-on global investor sentiment could give the rand some much-needed relief. The daily MACD indicator is set to cross to a sell signal and the RSI is trending lower after hitting the overbought zones. The first support level for the USDZAR pair is at R19.14/$ and a break below this rate will allow the rand to pull the pair onto the phycological rate of R19.00/$.

(Longer-term USDZAR outlook: https://www.tradingview.com/chart/USDZAR/ohbzpwrj-3Q2023-USDZAR-weekly-timeframe/ohbzpwrj)


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