Weekly market brief - 22 September 2017

SARBprise

Currency Outlook

  • The US Fed left interest rates unchanged and laid out plans to begin the unwinding of aggressive monetary stimulus in October. In a more hawkish stance than expected, the Fed signalled it expects one more rate hike by the end of the year, despite a recent bout of low inflation.
  • Dollar weakness and the SARBís surprise decision to keep rates unchanged helped to stop the randís move weaker over the past two weeks. Event risk remains high, with uncertainty as to whether the weakening trend will reappear.
  • The rand is expected to range-trade between R13.10 Ė R13.40 over the near term.

Local Data

  • Headline consumer inflation quickened to 4.8% y/y in August, below analyst forecasts of 4.9%, from 4.6% in July.
  • South Africa's central bank kept its benchmark repo rate at 6.75% on Thursday, defying expectations of a cut based on easing inflation pressures and a sluggish recovery from a recession in the first half of the year.
  • The prime rate also remained unchanged at 10.25%.

Interest Rate Outlook

  • At our latest MPC meeting a decision was made to keep the repo rate at 6.75% despite expectations of a 25-basis point cut.
  • "While we expect the central bank to cut interest rates further, the time horizon in which the Bank can achieve this is relatively short given various macroeconomic risks ahead," FNB chief economist Sizwe Nxedlana said. "Inflation is also forecast to start lifting again from mid-2018 onwards which will constrain the possibility of further policy easing in the second half of next year.

International News

  • US Housing starts slipped 0.8% to a seasonally adjusted annual rate of 1.18 million units, the Commerce Department said on Tuesday.
  • The Fed decided to keep interest rates on hold at 1-1.25%, as widely predicted.
  • The assessment of the current economic situation in Germany remains largely unchanged. The indicator currently stands at 87.9 points, which corresponds to an increase of 1.2 points compared with the August result.

Precious Metals

  • Gold prices fell to $1 319.22/oz last week on Friday after an ECB official called for scaling back the bank's stimulus programme, with losses capped after weak US retail sales raised questions above further rate hikes.
  • Gold fell to $1 287/oz on Thursday after the FOMC announced the beginning of balance sheet normalisation from October, as the dollar and treasury yields rose on the back of a signal for one more rate hike by the end of this year.

Base Metals

  • 3m copper peaked twice at $6 584/t this week on signs that a cooling property market in China was not derailing growth in the country.
  • 3m nickel fell to a one-month low of $10 535/t this week on profit-taking and a stronger dollar, however, concerns about supplies from the Philippines and healthy demand, particularly from Chinese stainless steel mills, capped losses.

Oil

  • Brent rose to $56.48/bbl earlier this week supported by a restart of US oil refineries, a fall in Saudi Arabian's crude exports and after Iraq's oil minister said OPEC and other crude producers were considering extending a supply cut. However, an expected rise in US shale output capped gains.
  • According to EIA data, US crude stockpiles rose more than expected last week. Crude oil inventories rose by 4.6m barrels, more than the 3.5m barrels expected in a survey by Thomson Reuters.
  • The data put downward pressure on oil prices after its release.