Liquidity conditions are easing which is allowing equities and risk assets to pump higher as we approach the final month of what has been an extremely volatile year. It was a relatively quiet week on the international data front but there were shake ups among the countries in the OPEC+ cartel which attracted the headlines.
The OPEC+ meeting that was scheduled to take place this weekend but was postponed after disagreements from some of the African nations regarding the cartels production quotas. OPEC’s African members Angola and Nigeria have reportedly asked to have a higher production ceiling next year, after taking a cut in their quotas at the June 2023 meeting of OPEC+ as they had consistently failed to pump to their quotas.
Additionally, Angola, Congo and Nigeria were forced to commit to lower oil production next year, and this weekend’s meeting could potentially have pressured them to make further production cuts. The Saudis have reportedly expressed discontent over compliance with the deal as they shoulder the bulk of the quota burden. We will keep a close eye on the developments of the negotiations and how it will affect oil prices in the 1Q2024.
Most sources are expecting Saudi Arabia, OPEC’s largest oil producer, to extend its voluntary cut of 1 million barrels per day (bpd) into 2024, considering the latest slide in oil prices to $80 per barrel and the typically weak period for oil demand in the first quarter of every year.
Locally, the rand failed to continue its streak against the major currencies last week despite the amplified risk-on market sentiment after the SARB announced that their repo rate will remain unchanged at 8.25%, as expected. The repo rate pause from the SARB was overshadowed by SA’s higher than expected October CPI figures after the year-on-year inflation print came in at a whopping 5.9%, up from 5.4% in September. The main factors driving SA’s CPI figures were food and transport which climbed 8.7% and 7.4%, respectively.
The week ahead will be data heavy and the markets risk sentiment and reaction to the results of the data prints will be interesting to judge whether the current risk-on sentiment has any substantial substance other than front running Fed rate cuts from the 2Q2024. The US GDP results for the 3Q2024 will be released and expectations are pointing to an optimistic 4.9% quarter-on-quarter growth figure, up from 2.1% in the previous quarter.
Additionally, a host of Purchasing Manufacturing Index (PMI) figures will be released from the top 2 economies, the US and China.
Starting the chart pack this week is Brent crude oil. Brent crude has fallen roughly 15% since the start of October and it is now tethering around the 200-day MA price of $82 per barrel. The critical level to watch is the 61.8% Fibo retracement level of $80 per barrel. A break below this level will see crude drop back down to $72 per barrel. It will however be a bullish sign if it can hold levels above $80 pb as it will confirm an end to the ABC corrective pattern and the start of another 5-wave impulse which could push crude to above $100 pb.
The rand has now given back almost half of its October gains following the ill received CPI figures and SARB interest rate decision. The rand slide roughly 2.5% last week which saw the USD/ZAR pair touch a high of 18.96. Luckily the rand managed to keep the pair below the critical 50-day MA rate of 18.82, but a break above this rate could see the rand slide further towards 19.20 as we enter the month of Ke Dezemba. It is difficult to gauge the rand’s moves but the rise in investor risk-on sentiment and eased liquidity conditions in fundamentally rand positive. The breakout of the downward channel and the break above the 200-day MA is however technically rand-negative.
Over to local equity land, the JSE all share index is looking set to test the 200-day MA level of R70,000 after gaining roughly 10% so far in November. Levels above R70,000 may be hard to maintain given the RSI indicator which is creeping close to the overbought zones but a bout of rand strength coupled with the current risk on sentiment could allow the index to break above the critical 200-day MA.
Meanwhile the dollar is limping with the increased liquidity conditions which is loosening its grip on the 200-day MA of 103.6. The RSI indicator is however entering the oversold zone which could lend a hand to the struggling dollar.
