Pound to South African Rand Rate Steadying Around 23.11 Short-term

Economic

Summary:

The Pound to South African rand exchange rate has receded from late July and early August’s highs but in most plausible scenarios it could be likely to steady around the nearby 23.11 level in the days ahead.

A stabilisation of global markets and improved risk appetite have helped the Rand back onto its front foot and weighed on GBP/ZAR of late, encouraged by robust investor appetite for the South African currency and increased market confidence that the Federal Reserve will cut interest rates meaningfully from September.

However, there is the prospect of a buoyant performance from Sterling that could limit any further decline in GBP/ZAR to 2.11 in the days ahead, given employment data suggesting a resilient UK labour market in June on Tuesday, and GDP data out on Thursday indicating a solid performance from the economy last quarter.

“The ZAR has proved the strongest major spot performer in the year to date,” said Jeremy Stretch, head of FX strategy at CIBC Capital Markets. “The net accumulation over the last six weeks is notable. Net holdings have accumulated by a factor of eight since mid-June, supporting ZAR outperformance.”

Pound to South African Rand Rate Steadying Around 23.11 Short-term_1

Above: Pound to Rand exchange rate shown at daily intervals with Fibonacci retracements of June rebound indicating possible areas of technical support.

Any stabilisation around 2.11 would be consistent with the author’s model-derived estimate of fair value for GBP/ZAR, which currently sits at 23.10, and would see the pair continue to be underpinned by the nearby 68.1% Fibonacci retracement of the June rebound, which sits at 23.08.

Another impediment to further losses in GBP/ZAR is the limited downside potential of USD/ZAR, which has fallen heavily in recent months but is fast approaching a major technical support level around 17.93, which is the 61.8% Fibonacci retracement of the extended uptrend from January 2023.

Both pairs share a relatively high positive correlation, suggesting GBP/ZAR would also gain support if the retracement at 17.93 level in USD/ZAR frustrates any further decline in the days or weeks ahead. USD/ZAR bottomed out at this level previously in the sell-off that followed the June general election.

However, the upside in GBP/ZAR and USD/ZAR could also be quite limited as the formation of a government of national unity has improved market sentiment toward the rand and South African economy, while the currency would also be likely to benefit from any further decline in the US dollar up ahead.

“South Africa’s economy looks to have recorded a pick-up in growth in Q2, but the recovery is operating at two speeds with retail sales and manufacturing on the up, while the mining sector remains a weak spot,” said David Omojomolo, an Africa economist at Capital Economics, in a Wednesday note to clients.

“Nonetheless, with easing electricity shortages and interest rate cuts on the way, the economy looks to be finally be turning a corner and we expect a further modest growth over the rest of this year,” he added.

Pound to South African Rand Rate Steadying Around 23.11 Short-term_2

Above: USD/ZAR shown at weekly intervals with Fibonacci retracements of January 2023 uptrend indicating possible areas of technical resistance, as selected moving averages denote either support or resistance. Click image for closer or more detailed inspection.

Source: Poundsterlinglive

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Warren Takunda

Political

Economic

More Japanese companies believe a Kamala Harris presidency in the U.S. would be better for their businesses than a second Donald Trump administration, a Reuters survey showed on Thursday, reflecting the respondents concerns about protectionism and policy unpredictability.

The outcome of November's U.S. presidential election is being closely watched by countries around the world. But Japan is a close ally of Washington, with tens of thousands of U.S. troops stationed there, and its businesses would feel the impact of a renewed U.S.-China trade war since both are among its top trading partners.

Some 43% of Japanese firms said they preferred Harris in light of their corporate strategies and business plans while 8% picked Trump.

A total of 46% said either candidate would be fine, with the remaining 3% saying they preferred neither.

"There is a possibility that trade war, economic friction and security threats will be brought about under another Trump administration, forcing us to change our business strategy," a manager at a ceramics manufacturer wrote in the survey.

Japan's relations with the Trump administration were at times strained by his demands for more payments towards military assistance and by trade tensions.

With Harris, "we can expect current policies to be maintained by and large. That would give us better visibility into the future," an official at a chemicals firm said.

Asked what change will likely be necessary under a Trump administration, 34% said their foreign exchange strategy would need to be reviewed, while 28% said their supply chains would be realigned and 21% said they would reduce their China operations.

Trump has floated the idea of a 10% universal tariff on U.S. imports, which could disrupt international markets, and a tariff of at least 50% on Chinese goods.

Nikkei Research reached out to 506 companies from July 31 to Aug. 9 on behalf of Reuters for the survey, with 243 firms responding.

CHINA SLOWDOWN

Regardless of who wins the U.S. election, 13% of Japanese companies are considering reducing operations in China, while 3% are looking into expanding their businesses, with 47% planning to maintain their current exposure, the survey showed.

Among those thinking about paring down operations in China, 35% said they saw no prospects for economic recovery, 29% cited tough price competition and another 29% pointed to economic security risks as reasons to cut back.

China's economy grew much slower than expected in the second quarter and its exports rose at their slowest pace in three months in July, adding to concerns about the outlook for its vast manufacturing sector.

Major Japanese companies that have announced cutbacks in their China operations in recent months include Honda Motor and Nippon Steel.

The survey also showed 24% of respondents saw recent rounds of intervention in the foreign exchange market by Japanese authorities as appropriate, compared with 9% that found the moves inappropriate and 64% that believed they were unavoidable.

The yen kept falling earlier this year despite intervention in April and May, touching a 38-year low of 161.96 to the dollar on July 3. Japanese authorities are suspected to have stepped in again in mid-July to put a floor under the yen.

"The extreme weakness in the yen had to be corrected. It just couldn't be helped," an official at an electronics company said.

Asked if the Bank of Japan should raise interest rates to shore up the yen, 51% said such a step was allowed only when exchange rates fluctuated excessively, while 22% said they didn't support a monetary policy change aimed at affecting the foreign exchange market.

On expectations for the yen, 32% saw it trading in a range of 145 to 150 yen to the dollar at the end of the year, while 25% predicted the Japanese currency to be firmer at 140 to 145 yen, while 22% saw it trading between 150 to 155 yen.

During the period of the survey, the yen was volatile and touched its strongest level since the start of the year before reversing course. It has since continued to weaken.

Source: Reuters

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TD Securities

Economic

The Consumer Price Index (CPI) rose 0.2% month-on-month (m/m) in July, bang-on the consensus forecast. On a twelve-month basis, CPI fell to 2.9% (from 3.0% in June).

After exerting a measurable drag in each of the two prior months, energy prices were largely flat in July. Food prices matched last month’s gain, rising 0.2%.

Excluding food and energy, core prices rose 0.2% m/m, a modest acceleration from June’s very soft monthly gain of 0.06%. The twelve-month change on core slipped by a tenth of a percentage point to 3.2% – the slowest pace of growth in over three years – while the three-month annualized rate of change fell to 1.6%.

Core services advanced a bit faster in July, rising by 0.3% m/m, and were entirely responsible for the uptick in headline inflation.

Shelter costs ticked higher by 0.4%, or roughly double the pace of growth seen in June and accounted for 90% of the monthly gain in headline CPI. Last month’s uptick in shelter costs were roughly in-line with the monthly gains averaged over the past twelve-months.Meanwhile, non-housing service inflation (aka ‘supercore’) rose by a soft 0.2% (0.15% unrounded) – an acceleration from last month’s modest pullback – thanks to an uptick in motor vehicle insurance (+1.2%), recreational services (+0.4%) and ‘other’ personal services (+0.3%).

Core goods prices fell by 0.3% on the month, largely due to a further decline in new (-0.2%) and used vehicle prices (-2.3%). Goods prices have been flat or have registered a decline in each of the last 14 months.

Key Implications

Despite the uptick in monthly readings for both headline and core inflation, price pressures remained relatively subdued in July. Nearly all of last month’s gain can be attributed to higher shelter costs, which carry a much smaller weight in core PCE inflation – the Fed’s preferred inflation metric. Moreover, goods prices continued to edge lower, while the uptick in ‘supercore’ was relatively mild – rising at just half the clip averaged over the prior twelve-months. As a result, near-term trends on core inflation continued to edge lower, with the three-month annualized rate of change pushing below 2%.

With the labor market showing clear signs of cooling and inflationary pressures subsiding, the Federal Reserve can confidently start to dial back its policy rate in September. As noted in our recently published Q&A, we expect three quarter-point rate cuts from the Fed by year-end.

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Titan FX

Forex

Commodity

Cryptocurrency

Crude Oil Price Technical Analysis

Crude oil prices recovered above the $78.00 and $78.80 levels. It even spiked above $80.00 before the bears appeared and pushed prices lower.

Crude Oil Prices Vulnerable: Is a Fresh Decline on the Horizon?_1

Looking at the 4-hour chart of XTI/USD, the price started a fresh decline from the 80.26 level. It traded below the $78.80 and $78.00 levels. There was a test of the 38.2% Fib retracement level of the upward move from the $72.04 swing low to the $78.26 high.

The price is now testing the 100 simple moving average (red, 4-hour) and is now well below the 200 simple moving average (green, 4-hour).

Immediate resistance on the upside is near the $78.00 level. The next major resistance is near the $78.80 zone, above which the price may perhaps accelerate higher. In the stated case, it could even visit the $80.00 resistance.

If not, the price might start another decline. The first major support on the downside is near the $76.20 level or the 50% Fib retracement level of the upward move from the $72.04 swing low to the $78.26 high.

There is also a connecting bullish trend line forming with support at $76.15 on the same chart. The next major support is $75.00. Any more losses might send oil prices toward $72.00 in the coming sessions.

Looking at Bitcoin, the price started a recovery wave above the $60,000 level but the bears are protecting gains above the $61,500 level.

Economic Releases to Watch Today

US Initial Jobless Claims - Forecast 235K, versus 233K previous.US Retail Sales for July 2024 (MoM) – Forecast +0.3%, versus 0% previous.

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Warren Takunda

Economic

Japan’s gross domestic product for the April-June quarter posted a stronger-than-expected rebound after suffering its first contraction in two quarters in January-March, up a preliminary 0.8% on quarter, or an annualized 3.1%, as consumption and business investment picked up after having been hit by suspended output at Toyota group factories over a safety test scandal, Cabinet Office data released Thursdayshowed. Public works spending also marked a sharp rebound.

Thanks to robust private consumption, growth came in above the median forecast of a 0.6% rise on quarter and at the top end of the economist forecasts that ranged from 0.2% to 0.8%, beating a consensus 2.3% rise at an annualized pace and the forecast range of 0.6% to 3.0%.

The rebound in the second quarter GDP recovered all of an upwardly revised 0.6% drop, or an annualized 2.3% in the first quarter. The economy narrowly averted a second straight contraction in the final quarter of 2023, when it showed an upwardly revised 0.1% growth on quarter, or an annualized 0.3% increase.

Domestic demand added 0.9 percentage point to total domestic output, above the median forecast of plus 0.6 point, after pulling down the first quarter GDP by 0.1 point (revised up from minus 0.4 point). External demand (exports minus imports) is still sluggish, trimming overall growth by 0.1 point, in line with consensus after making a negative 0.5-point contribution in the prior quarter (revised down from minus 0.4 point).

Looking ahead, the economy in July-Septmeber is expected to show moderate growth as large firms are raising wages at the fastest pace in 33 years and investing in capacity to cope with labor shortages. Real wages rose 1.1% on the year in June, marking the first rise in 27 months, after falling 1.3% the previous month.

From a year earlier, the economy fell 0.8% (consensus was a 1.2% drop) in April-June for the second consecutive drop after slipping 0.9% in January-March (revised from a 0.8% fall).

The Econoday Consensus Divergence Index stands at plus 21, comfortably above zero, which indicates the Japanese economy is performing better than expected after outperforming with a slight margin. Excluding the impact of inflation, the index is at plus 40.

The Cabinet Office estimates that in order for real GDP to hit the official forecast of 0.9% growth in fiscal 2024 (revised down from 1.3% last month), the economy will have to grow 0.51% on quarter, or an annualized 2.1% in each quarter of the three quarters left in the fiscal year ending next March, which might be challenging for Japan’s wobbly recovery from the pandemic.

The economy grew a real 0.8% (revised down from 1.2%) in fiscal 2023, which is now clearly below the official forecast of a 1.6% rise, after expanding 1.6% in fiscal 2022, which was slightly under the official projection of 1.7%. It followed a 3.1% gain in fiscal 2021 and decreases of 3.9% in fiscal 2020 and 0.8% in fiscal 2019.

Consumption Rebounds More Sharply Than Expected

Private consumption, which accounts for about 55% of GDP, rose 1.0% for the first increase in five quarters, coming in much stronger than the median projection of a 0.5% rise (forecasts ranged from 0.3% to 0.5% gains). It followed a 0.6% drop in the first quarter. Toward the end of the second quarter, the killer heat wave boosted demand for air conditioners and refrigerators while a late start to the rainy season in many regions propped up demand for beverages, snacks, eating out and summer clothing.

Consumption pushed up the second quarter GDP by 0.5 percentage point after making a negative 0.3-point contribution (revised from minus 0.4 point) to the total domestic output in the previous quarter.

Capex Also Makes Up for Q1 Slip

Business investment in equipment rebounded 0.9% on quarter in April-June, slightly above the median forecast of a 0.8% rise (forecasts ranged from a 0.1% drop to a 1.6% rise). It recovered from a 0.4% fall in January-March but was slower than the 2.1% rise in October-December.

Capex made a positive 0.2-point contribution to the second quarter GDP after providing a negative 0.1-point contribution the previous quarter.

Some firms are cautious about implementing their solid plans amid elevated costs and uncertainty over global growth but capital investment is generally supported by demand for automation amid labor shortages as well as government-led digital transformation and emission control.

Net Exports Sluggish

Net exports of goods and services — exports minus imports — made a negative 0.1 percentage point contribution to the total domestic output, in line with the median forecast of a 0.1-point decrease (forecasts ranged from minus 0.4 to plus 0.2 points) after trimming the GDP by 0.4 point in the previous quarter.

Japanese exports of goods and services rose 1.4% on quarter in the April-June quarter GDP after posting their first quarterly decline in four quarters in January-March with a 4.6% dip. Imports also rose 1.7% after falling 2.5% in the previous quarter, which was the first decline in three quarters.

The number of visitors from other countries has recovered to pre-Covid levels and their spending is counted as Japanese exports of services. By contrast, the volumes of goods exports are falling as the effects of the past rate hikes by major central banks are weighing on global growth.

Private Inventories Trim GDP, Public Works Spending Rebounds Sharply

Private sector inventories provided a negative 0.1 percentage point contribution to the second quarter GDP, compared to the median forecast of minus 0.1 point (forecasts ranged from minus 0.2 point to zero), after pushing up the first quarter GDP by 0.3 point.

Public works spending posted a sharp 4.5% surge (consensus was a 4.1% jump), backed by the stimulative effects of the fiscal 2024 budget, after slumping 1.1% in January-March. Forecasts ranged from 1.2% to 7.8% gains. Public investment made a positive 0.2-point contribution to the second quarter GDP after lowering the total output by a slightly negative 0.1 point in the previous quarter.

Price Pressures Continue Easing Both on Year, Pick Up on Quarter

The unadjusted deflator rose 3.0% on year in April-June after rising 3.6% in January-March and 3.9% in October-December. The slower increase was due to a 6.9% rise in the import deflator following a 2.9% gain in the previous quarter. The pace of increase in the domestic demand deflator accelerated slightly to 2.4% from 2.3%.

The seasonally adjusted deflator rose 1.0% on quarter after rising 0.3% in the first quarter, with the domestic demand deflator also increasing 1.0% after rising 0.5%. The import deflator rose 1.9% after rising 1.5% in the prior quarter.

Source: MaceNews

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ING

Central Bank

Economic

US inflation a touch softer than predicted

US consumer price inflation has risen 0.2% month-on-month for both headline and core, in line with expectations. However, it is slightly better than that as to 3 decimal places headline rose 0.155% and core rose 0.165%, both of which are below the 0.17% rate that over time brings us to 2% year-on-year.

The chart below shows that we have had three consecutive readings below 0.17% MoM for core inflation and that the 3M annualised rate is now just 1.6%. The Fed has told us they won't wait for the YoY rate to hit 2% (currently 3.2%) before cutting interest rates, because if they do that the risk is they have left rates too high for too long. This would mean a greater chance of an undershoot in late 2025 / early 2026.

US core CPI metrics

Housing cost pressures linger

The details show apparel prices fell 0.4% MoM while transportation fell 0.1% thanks to falling new and used vehicle prices and a 1.6% drop in airline fares. Medical care costs also fell. Supercore (services ex food, energy and housing) rose 0.21% after two consecutive negative prints, but remember we had averaged above 0.5% MoM in the first four months of the year, so there is still a clear moderation, with this component effectively averaging 0% over the past 3M.

In general the numbers can be choppy, but we don't believe we are on the cusp of a renewed pick up in prices – unit labor costs suggests the "costs" side of things looks well behaved while surveys of corporate pricing behaviour, such as the NFIB price intentions series and regional Fed surveys of prices received, continue to moderate.

The one area of real disappointment was housing with primary rents up 0.5% MoM and owners’ equivalent rent up 0.4%. Recent numbers had been tracking more in line with private surveys on housing costs, so the re-acceleration today is a surprise. The market has seemingly moved to reduce the pricing of a 50bp cut in September on the back of this.

Housing costs MoM% re-accelerate

The question of rate cut magnitude remains

Nonetheless, this report should help to cement expectations for another 0.2% MoM and quite possibly 0.1% print for the Fed's favored inflation measure – the core PCE deflator – in a couple of weeks’ time. That would ensure a Fed rate cut in September in light of the cooling jobs market and softening business surveys with it only being a question of magnitude.

For now we favour a 50bp to start off as the Fed plays catch-up to the data before reverting to 25bp moves thereafter. However, the jobs report, published on 6 September is critical for this view. A soft payrolls and another move higher in the unemployment rate and then a 50bp move looks assured. A strong jobs number and perhaps a dip in the unemployment rate back to 4.2% and it will be a 25bp cut.

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FxPro

Cryptocurrency

Market Picture

The cryptocurrency market added 2.2% in the last 24 hours to reach $2.14 trillion, a fresh attempt to climb into the upper half of last month’s trading range from where last week’s sell-off was intensified. Over the past 24 hours, the macroeconomic background has been favourable for risk appetite thanks to slowing producer prices and New Zealand’s key rate cut.

Bitcoin remains at arm’s length from the $61K level, continuing to test the 50-day moving average and adding 2.5% in 24 hours. We assume a high correlation between Bitcoin, the entire crypto market and the dynamics of the stock market. Data supporting the Fed’s imminent easing of monetary policy may encourage the bulls to overcome the short-term downtrend and give the green light to rise all the way to $66K. Nevertheless, a new sell-off momentum is still the prevailing scenario, with a potential pullback to $55K.

With Ethereum as an example, we can see how ETFs perform in the early stages. The coin is recovering better than other altcoins, adding 2.8% on the day to $2730. ETHUSD is vulnerable to equities sell-offs but benefits more from inclusion in portfolios of investment managers seeking broad diversification.

News Background

BRN is cautious about Bitcoin’s outlook and recommends using the pullback to increase positions gradually. Volatility will continue in August and September, with BTC fluctuating between $49K and $69K.

Bitcoin may leave the established corridor due to the upcoming Fed rate cut and the US election, FalconX believes. A sustained rally in altcoins will require improved liquidity narratives and trends, as well as the removal of potential selling pressure from early investors.

The US SEC accused NovaTech’s founders and promoters of organising a Ponzi scheme that raised more than $650 million in crypto assets from more than 200,000 investors worldwide.

Japanese public company Metaplanet announced the purchase of 57.1 BTC for 500 million yen (~$3.3 million), bringing the company’s total Bitcoin holdings to 303,095 BTC ($18 million).

As noted by Arkham, Custodian BitGo moved 33,140.4 BTC (~$1.97 billion) related to the collapsed Mt. Gox. It is the last of five platforms working with a trustee to distribute funds to creditors. The addresses of the collapsed platform still hold 46,164 BTC worth $2.75 billion.

The liquidators of cryptocurrency hedge fund Three Arrows Capital (3AC) have demanded at least $1.3 billion from Terraform Labs, the company behind the Terra ecosystem. One of the industry’s most prominent hedge funds collapsed shortly after Terra and several other major crypto companies collapsed in 2022.

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