Besides the chair of the Federal Reserve, Jerome Powell’s speech last week, no major data events rattled the markets. The major data print from last week saw China post a 5.3% year-on-year GDP growth figure for 1Q2024 and the People’s Bank of China (PBoC) will update their latest interest rate decision in the early hours of Monday morning off the back of the recent positive Chinese data.
Additionally, fears regarding the escalated tension in the Middle East evaporated as the week progressed which saw the price of crude oil failing to hold price levels above $90 per barrel. The US stock indexes however failed to shake off the volatility concerns which saw the S&P 500 fall for the third consecutive week while gold went on to touch fresh all-time highs.
Locally, the latest CPI figure for March came in cooler than expected at 5.3%, down from 5.6% last week. But, inflation is still well away from the South African Reserve Bank’s (SARB) mid-point target of 4.5%. The SARB will release their latest monetary policy review this week. However, don’t expect any policy changes from them until the US Fed starts cutting rates and SA inflation is sitting comfortably below the 4.5% mark. SA inflation is only expected to moderate to this level around 4Q2024.
Looking at the week ahead, two highly anticipated data releases are scheduled from the US. The first is the US GDP figure for the 1Q2024 and expectations are pointing to a quarter-on-quarter growth figure of 2.5%, down from 3.4% in the 4Q2024. The second is the updated US PCE figure. The personal consumption expenditures (PCE) is the Fed’s preferred inflation metric and expectations are hinting at a year-on-year figure of 2.6% for March, up from 2.5% in February. It is clear that US inflation is still well above the Fed’s 2% target but a softer-than-expected PCE print could see rate cut expectations spike this week.
The first chart of the week is the S&P 500. US stock indexes are falling off of their all-time highs which has seen the S&P fall below the 50-day MA support level at $5,125. A failed move above $5,000 will see the index fall lower onto the 38.2% Fibo rate of $4,820.
The US treasury market is becoming agitated at the latest Fed stance that rates may most likely remain unchanged through the 2Q2024 and 3Q2024 which has put upward pressure on the US treasury yields. US 10-year yields broke back above 4.50% last week and a continued sell-off will see yields spike back to 5.00% for as long as the current Fed narrative holds its ground. Additionally, the 50-day MA has crossed above the 200-day MA, the infamous Golden Cross. Higher US bond yields will continue to tighten global financial conditions which is supportive of continued dollar strength as the year progresses.
The dollar traded in a tight range last week and with the US GDP and US PCE data prints scheduled for the week ahead, we may see some selling pressure on the over-bought greenback. I’m expecting a pullback towards the 61.8% Fibo level of 104.80 before the dollar bulls find continued momentum.
Brent crude oil is pulling back as expected despite the elevated tension in the Middle East. A failed break below $85 per barrel will allow black gold to continue its move higher towards $95 per barrel.
As always, we have to include the beloved ZAR in our weekly charts. The USDZAR has bounced up aggressively after the major blue support range held its ground at 18.40. The pair climbed a full rand to 19.40 within two weeks after touching the 3-month low of 18.40. The red resistance range has managed to come to the rand’s rescue, which allowed the pair to slide back below the downward blue trend line.
The blue wedge I have been highlighting is narrowing and it is only a matter of time before we see a breakout. The critical rate to watch remains at 18.97. A failed break below 18.97 will be the first indication of a top-side break of the wedge which will see the rand fold to 19.65 against the dollar. A break below 18.97 will allow the rand to rand to re-test the bottom end of the wedge around the 200-day MA mark at 18.75. I am leaning towards a top-side break out of the blue wedge given the rand’s subdued gains from the recent rise in precious metal prices, the lead-up to the local elections (29 May) and the broad-based dollar strength. A break below 18.97 and the 50-day MA at 18.89 will force me to reassess.
