The headlining events from last week were mainly centered around the meeting of the minds with two crucial economic gatherings taking place, one in Kansas City and the other in Johannesburg. The Jackson Hole Symposium is a yearly gathering, hosted by the Federal Reserve of Kansas City, of prominent central bankers and policymakers. The symposium and the guidance regarding the stance of the current monetary policy environment are yet to be finalized. Federal Reserve chair, Jerome Powell, gave his speech on Friday but he dropped no bombs regarding the Fed’s latest monetary policy stance. Regarding the BRICS summit in Johannesburg, the biggest news is the new members of the bloc: Argentina, Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates.
Looking over to China, the Peoples Bank of China (PBOC) cut its 5-year prime loan rate to 3.45%, down from 3.55% on Monday as the bank is trying to stimulate China’s stagnating economy. The China recovery has been disappointing, to say the least, and fractures in the Chinese economy are starting to show, Which major central bank will be next in line to fold their rate hiking hand is the question on the market’s lips. The high-interest rate environment is starting to pinch the global economy and the weaker-than-expected PMI figures (Purchasing Managers Index) from the US, Eurozone, and UK on Wednesday, served as a strong confirmation. Stock markets and risk assets were off to the races following the PMI data prints as it signals to the markets that the central banks may start taking a U-turn regarding their current hawkish stance. The gains were however wiped out at the back end of the week.
The week ahead holds three critical data prints regarding the Fed’s monetary policy, the US non-farm payroll print, and the Fed’s preferred measure of inflation, the US PCE (personal consumption expenditures) price index. A weaker than expected PCE print and a lower-than-expected nonfarm payrolls print could spark fresh demand for risk assets as it will signal that the Fed’s rate hiking cycle is nearing its peak. Additionally, the US GDP figures for 2Q2023 will be released and expectations are pointing to a quarter-on-quarter growth of 2.4%, up from 2% in 1Q2023. Other important data prints include the latest PMI figures from China, which will most likely highlight the lackluster Chinese economic performance and the latest Eurozone CPI figures for August.
At the front of the chart pack this week is the US 10-year yield curve. The rapid rise in US 10-year Treasury yields is due to the current uncertain and risk-off economic environment which saw yields touch the 2022 highs of 4.33%, last week. Treasury yields pulled back heavily on Wednesday following the weaker-than-expected prominent PMI figures which saw yields fall onto their 4.20% support level. A failed break below 4.20% will allow yields to rise to re-test the highs at 4.35%.
Looking over at the dollar, the DXY is reveling in the high US treasury yields environment which has allowed the DXY to break above the resistance level of 103.60. The dollar is however trading in overbought zones according to the RSI indicator which could see the DXY pull back to re-test the level at 103.60. The 200-day MA, at 103.13, is the critical level to watch. As long as the DXY maintains levels above the 200-day MA, the DXY will push higher towards the yearly high of 106.00.
Locally, SA CPI for July came in lower than 4.8%, down from 5.4%, year-on-year while core CPI dropped to 4.7%. The weaker-than-expected local CPI figures coupled with the weaker global PMI figures allowed the rand to pull the USD/ZAR pair to a 3-week low of 18.40, last week Wednesday. The 50-day MA rate of 18.48 remains the critical rate to watch for the pair. The pair is trending lower and the MACD technical indicator is currently holding a sell signal which could allow the rand to pull below the 50-day MA support rate and lower toward the 200-day MA rate of 18.10.
The S&P 500 had a bit of a relief week last week, but the index failed to break above the critical 50-day MA rate of $4,460. A re-test and break below the 23.6% Fibonacci retracement level of $4,344 could see the index fall deeper into the support range between $4,265 and $4,310.
Checking in on the JSE, it’s been a tough month at the office for the index. The JSE top 40 index has fallen roughly 7% in August off the back of the weaker rand, risk-off investor sentiment and weak commodity prices. The index has crashed through its 50-day and 200-day MA support levels and a drop lower towards a yearly low of R66,470 seems imminent.
