Last week was an eventful week in the markets in terms of data prints as well as speeches from prominent figures. Fed president Powell delivered his testimony before congress and President Biden attempted to string together a coherent state of union address.
The market moves illustrated firm risk-on investor sentiment with the broad-based dollar index contracting 1.32% and falling to a 2-month low of 102.37 while the US-10 year yield fell aggressively towards the 4.00% handle. The contraction in the DXY and US long-term yields is an early signal that markets are expecting a rate cut from the Fed at the next rate decision scheduled for the 20th of March. The dollar did however find some strength after a strong non-farm payrolls print of 275 thousand for February, up from 229 thousand in January.
A word of caution, markets are definitely hedging bets on the so called soft landing narrative but tomorrow the US Bank term funding expires which could cause another short-term liquidity crisis for the US banking sector, similar to what it experienced in 2023. I’m expecting another liquidity shortage this year and the stress it will have on the US banking sector will force the Fed to cut rates. The Fed never cuts rates voluntarily, they cut rates as a last ditched effort to restore stability in a high stress environment, just like when they ushered in Quantitative Easing following the 2008 great financial crises…
Locally, the latest GDP print for the 4Q2023 reported a year-on-year growth rate of 1.2%, up from the -0.7% contraction last year. The slightly good news was however over shadowed by the release of the latest SA current account deficit. The SA current account deficit swelled immensely to R165 billion up from a deficit of R34.4 billion. The current account records a nation’s transactions with the rest of the world, specifically its net trade in goods and services, its net earnings on cross-border investments, and its net transfer payments.
The week ahead is a quiet one with the headlining data print being the US CPI and retail sales results which will provide the markets with an update on the Fed’s fight against inflation and state of the US consumer. Locally the latest SA mining production results will be released.
The first chart of the week is the rand which has managed to gain off the back of a weaker dollar and higher precious metal prices which has allowed the rand to pull the pair back below the R19.00/$ mark. The red resistance zone held its ground and the rand has appreciated roughly 3.6% since the end of February. The pair will most likely test the 200-day MA and 50-day MA this week which sits at 18.74 and 18.88 respectively and the main support rate to watch will be the 18.50 handle. The rand has managed to pounce on the weaker dollar but strong support is expected below 18.50.
The red resistance zone held its ground and the rand has appreciated roughly 3.6% since the end of February. The pair will most likely test the 200-day MA and 50-day MA this week which sits at 18.74 and 18.88 respectively and the main support rate to watch will be the 18.50 handle. The rand has managed to pounce on the weaker dollar but strong support is expected below 18.50.
Next up is the DXY which has depreciated roughly 2% since failing to break above the downward red line in February. The DXY nose-dived in mid-week but it managed to hold some ground on Friday after the higher than expected non-farm payrolls print. The DXY is nearing oversold zones on the RSI and a Fed decision to hold rates unchanged later this month will allow the DXY to bounce higher to re-test the downward red trend line.
Time to move on to the commodity space with gold and oil. First up is oil. UK brent crude is currently dancing with the 200-day MA of $82.26 per barrel and a failed break below this support will open the gates for a move above $85 per barrel. I’m cautious being too bullish on oil since the Fed’s fight against inflation is essentially the fight against oil and the Fed will do everything it can to suppress oil to maintain their creditability.
Gold blasted past its previous all-time high of $2,147 per ounce. The modern financial system hates gold because it blurts out unpleasant truths and the recent surge in gold in my opinion serves as an early warning indicator. Only time will tell and as mentioned earlier I don’t believe there will be a soft landing…
Similarly bitcoin has also recorded a fresh all-time high this week after it touched levels above $70,000. The last time we wrote on bitcoin we stated that a break above $48,910 will allow the leading crypto asset to initiate a strong bull run. The bitcoin halving is expected around the 20th of April and coupled with the ETF approvals earlier this year, there are clear skies ahead for bitcoin. Bitcoin always strengthens into the halving and the next rational and conservative price level is at $100,000. (The Bitcoin Halving is when Bitcoin’s mining reward is split in half.)
