Last week was all about the release of the latest minutes from the Federal Open Market Committee(FOMC). Just for some context, the Federal Open Market Committee, also known by the acronym ‘FOMC’, is the twelve-member committee within the US Federal Reserve (Fed) responsible for determining monetary policy. In summary, the FOMC reaffirmed its commitment to keeping the federal funds rate between 5% and 5.25% in the near future and all members expressed a strong commitment to bringing inflation back down to 2%. They however anticipate a “mild recession” in the second half of the year which placed the dollar and stock indices under pressure at the back end of last week.
It is now expected that the Fed will raise rates by another 25 basis points later this month which will push the federal funds rate to between 5.25% and 5.50% with the median projection of FOMC members expecting the federal funds rate to reach 5.60% by the end of this year. This represents a significant increase from the 5.1% projected back in March. The latest non-farm payrolls employment figures from the US for the month of June also added to the volatility on Friday. The results came in lower than expected at 209 thousand, down from 306 thousand in May which could be an early sign of the anticipated “mild recession”.
The week ahead is busier compared to last week with the headlining event being the latest US CPI figures for the month of June with expectations pointing to a year-on-year print of 3.1%, down from 4.0% in May. Markets will also gain insights regarding the health of China’s trade balance at the back end of the week. In terms of local data, the latest manufacturing and mining production figures for the month of May are expected to come in at 1.2% and 3.3% year-on-year, respectively. Let’s hope the reduction in loadshedding lends a helping hand to these two vital sectors in the 2H2023.
We’re kicking this week’s charts off with he US 10-year treasury yield. Long-term US treasuries have come under significant selling pressure since the start of July, as we forecasted in our previous report, which has seen the 10-year yield surge back above the 4.00% mark. The strong break above the 61.8% Fibonacci retracement rate of 3.886% now paves the way for a move higher towards 4.337% but we expect the current re-zone to hold some resistance.
Moving our attention to the dollar index, the dollar got clobbered like a baby seal on Friday following the weaker than expected US non-farm payroll employment data. This saw the DXY give back all the week’s gains as well as breaking below the pivotal 50-day MA support level of 102.919. The next support level sits at 101.971. It’s difficult to determine whether the DXY is forming a base between 100 and 103. If the low at 100.850 holds it could signal a long-term bullish cycle over the next few months but a break below could see the dollar weaken substantially going forward. Technically, the daily MACD has swung back to a sell-signal and a break below 101.971 will see the index drop into the key support range.
The volatility in the US bond market does not bode well for equities and the S&P 500 is forming a textbook double top pattern. I’m expecting the index to come under pressure given that the Fed’s hawkish views have been confirmed last week. A move lower will see the index fall lower onto the 61.8% Fibonacci retracement level of $4,260.35 which coincides satisfyingly with the 50-day MA level of $4,250.85. The technical indictors are also confirming this view with the MACD holding a sell signal along with the bearish divergence on the RSI.
Shifting over to the local equity market, the JSE all share index will also find itself on the ropes if global equities sell-off. A break below the crucial 200-day MA level of R68,673.93 will see the index slide into the range between R66,384.55 and R67,138.08.
As always, we must touch base with our beloved rand. The USD/ZAR seems to be forming an ABC corrective pattern as well as a bear flag which could allow the rand to pull the pair below R18.50. The rand will however have to hold the pair below the 50-day MA rate of R18.87 for this move to materialize. A failed break below the 50-day MA will however see the pair climb higher into the resistance zone between R19.35 and R19.50. In terms of technical indicators, the MACD is holding a weak buy signal while the position on the RSI in indeterminant. Only time will tell…
One positive fundamental factor which in my opinion could support the rand, is the price of platinum. Platinum is looking deeply oversold and the position of the RSI indicator confirms this statement and a bounce higher towards the 200-day MA price level of $992.48 is on the cards. The MACD indicator is also rolling over bullishly to a buy signal.
We’ll conclude this week’s report with the most important commodity on the globe, brent crude oil. Crude has been stuck in a tight and boring range between $71.00/per barrel (pb) and $87.00/pb since the start of the year. The 50-day MA at $75.44 seems to have held its support and a break above $78.60/pb will allow commodity to push higher towards the 200-day MA level of $82.72/pb with the potential of a move back towards the top end of the current range at $87.00/pb.
