The Markets Daily: Recent Episodes
Rand Merchant Bank
RMB's research offering spans across the fixed income, currency and credit markets to offer strategic insight to our clients across multiple sectors and markets.
Combing through news flow on 1 April is a rather risky endeavor, let me tell you! That said, fortunately, the two big pieces of news that I will be discussing today were announced yesterday! The first is the announcement by the US that it will be releasing one million barrels of oil per day over the next six months in an effort to ease concerns over global oil supply and reduce pressure on oil prices.
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And so the daily ups and downs continue. Talks between Ukranian and Russian officials over a ceasefire seem to have stalled. They are set to resume tomorrow, but the continued lack of progress wil add to uncertainty in global asset markets. In an attempt to bring some calm to the oil market, it seems the US is considering releasing a million barrels of oil a day for a couple of months.
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Talks for a ceasefire between Ukraine and Russia begin today. Ukraine is hoping, at the very least, for an improvement in the humanitarian situation, but no doubt a cease-fire and commitment to peace talks would be preferable.
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The Russia-Ukraine war remains the central focus for markets, speculation about the next moves from Russia, and sideline participation in various forms by other countries remains rife.
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It is (only) a month since Russia began its invasion of Ukraine – I say only because it feels like it has been so much longer. In a month commodity prices have gone wild, concerns over rising inflation have only intensified and the geopolitical landscape has gone from posturing to positioning.
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President Joe Biden will be in Europe from today to meet with the US’ NATO partners, attend a European Council meeting and participate in a G7 Summit. These meetings will centre on the war in Ukraine.
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We return from a long weekend to more of the same – the war in Ukraine rages on. Oil prices, after dipping briefly to below US$100/bbl last week, have rocketed to over US$110/bbl today with Brent crude approaching the US$120/bbl level and WTI crude US$115/bbl.
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Talk is cheap – and to remind politicians and policymakers markets have sent a clear signal this morning.
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Lift-off, both for the federal funds rate and Comair. Very much as expected, the Federal Open Markets Committee raised the federal fund rate by 25bp at its March meeting.
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Talks between Russia and Ukraine are set to resume today, but it seems the views of officials from both sides are already quite different, with Ukraine seeing space for compromise and Russia suggesting Ukraine isn’t “serious” about finding a resolution to the war.
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A collective sigh of relief may be apparent globally with news that the price of WTI crude has fallen below USW$100/bbl and Brent crude oil is flirting with this level. Oil prices are still significantly higher than their year’s opening level, but have equally come off the highs seen over the past few weeks.
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The Russia-Ukraine war remains the central focus of global news today with the US having announced that Russia has approached China for support – in the form of military equipment.
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The weekend brings with it a chance for a break, but in these uncertain times, it also adds a certain level of anxiety, as the world we face at the start of the new week could be vastly different to the world we leave at the end of the week.
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It never rains, but it pours. This proverb seems so incredibly appropriate in a very wet Johannesburg today. At least the rain up here is actually something good – it may not seem it here in SA’s summer rainfall region this season, but this is a water-scarce country, so rain means one less year of drought in my mind.
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Tensions continue to escalate both on the ground in Ukraine and also in terms of economic responses to Russia’s invasion of Ukraine. The US has moved a step closer to passing legislation to ban oil imports from Russia, while EU countries are still debating whether to follow this course of action.
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The war in Ukraine continues to dominate news, commodity prices and asset markets. The oil price, already a sharp mover this year as we have discussed in this forum, has shot up even further, with the price of Brent crude oil almost hitting US$140/bbl this morning in response to news that the US is discussing sanctions on Russian oil and energy exports with its allies – and even contemplating imposing these alone if it doesn’t get consensus.
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It is crazy to think that it has only been nine days since the geopolitical tension in eastern Europe between Ukraine and Russia turned into a war. It feels like it has been going on for so much longer.
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Jerome Powell’s appearance before the US Congress has brought, at the very least, a moment of calm to markets. His preference for a 25bp hike at the March meeting over a 50bp hike has brought a bit of certainty during an incredibly uncertain time.
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The war in Ukraine remains the central focus in the world today. Despite the commitment by the US and its allies to collectively release 60 million barrels of oil to try and ease concerns over oil supply shortages
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We start the week off safe in the knowledge that markets are going to hop from headline to headline. The conflict in Ukraine continues to intensify and will remain the primary driver of market movements this week.
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Focus remains squarely on Ukraine today. The conflict continues to intensify and it seems that Russia is making a concerted effort to capture Ukraine’s capital, Kyiv.
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It has happened, Russia has pulled the figurative trigger by launching what it calls a demilitirisation operation in Ukraine this morning. Martial law has now been declared in Ukraine with its foreign minister labelling the incursion an all-out invasion.
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The saying that it never rains but pours feels appropriate today. Ironically the weather forecast in what has been a very wet Johannesburg is dry despite looming clouds following warm summer days.
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President Putin recognised two separatist republics in eastern Ukraine overnight, escalating geopolitical tensions.
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Which will come first – the talks between Russia and the US or a Russian invasion of Ukraine? Only time will tell.
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The week continues with the themes not changing all that much. Markets continue to eye the situation around Ukraine with nervousness, and speculate over monetary policy moves, particularly by the Federal Reserve.
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The world remains on tenterhooks over the tension around Ukraine. The latest is that the US still believes a diplomatic solution is possible, but have also cautioned that the Russian army remains positioned to invade Ukraine.
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Sarcastic remarks by the Ukrainian president sent markets tumbling, with US markets closing weaker yesterday despite recovering from the initial rout.
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Posturing and speculation over the potential of Ukraine by Russia has intensified. The US has warned that Russia will be able to launch an assault on Ukraine this week, but don’t seem certain it will happen. Thus trading this week begins with sentiment turning to risk-off.
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US CPI hit 7.5% y/y in January, the highest it has printed since February 1982 – almost a full 40-year gap. The print was also higher than expected, resulting in a flurry of activity, with the generic 10-year US bond yield breaching the 2% level and US equities seeing a fairly sharp sell-off after the release.
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This week’s eventful day has arrived, and yet there is still a time to wait before the action begins!
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A pause at the midpoint of the week. Having seen significant volatility for the first part of this week, equity markets are trading broadly in the green.
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The Chinese market catch-up is over and today we see equity markets see-sawing through their trading sessions.
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Last week ended on an unexpected high, 476,000 to be exact. This is the number of jobs added in the US in January, substantially higher than the Bloomberg consensus expectation of 125, 000
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Mirroring the emotions of the athletes will no doubt be global markets, with extreme highs and lows – this can be best illustrated in the massive losses experienced by Meta on markets earlier this week.
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OPEC+’s production update did not surprise with an increase of 400,000 barrels per day announced. The concern though lies with the ability of some OPEC+ members to meet these supply targets.
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South Africa hasn’t had a good start to February, as discussed yesterday, the price of fuel went up today and to add to consumer and economic woes, load-shedding will be implemented from 11:00
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Near-term inflationary pressures remain high globally, and South Africa is not immune to this as evidenced by the announcement yesterday from the Department of Energy that the prices of petrol and diesel will rise on Wednesday.
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Event and data filled week ahead of us including monetary policy announcements by the Reserve Bank of Australia, Bank of England and ECB.
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As is typical for January, the first two weeks felt calm and quiet and then last week activity ramped up. But this week was when we really hit our stride for the year – with the FOMC delivering its first decision for 2022, followed by the SARB’s first decision and an advance estimate of 4Q21 GDP for the US, among many other releases and events.
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The FOMC delivered no major surprise yesterday. Rates were kept on hold and the Fed’s asset purchase programme is being slowed further and will end in March.
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There is still pretty much a full working day ahead of use before the Fed’s first decision for the year is announced, but we are counting down hours now, not days. The statement and subsequent press meeting will be closely scrutinsed.
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As highlighted yesterday volatility is driving market movements today. Tensions over the possible invasion of Ukraine by Russia and ancipation of the Fed’s January decision are the key events driving volatility.
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Markets to reflect the waiting game that will be undertaken at the start of the week, in anticipation of the Fed’s first policy announcement for 2022.
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Congratulations to the class of 2021! Despite incredibly challenging circumstances over the past two years, the pass rate for the national senior certificate (NSC) improved to 76.4%. This remains below the 2019 pass rate of 81.3% though, granted the world in 2019 was vastly different to the world today.
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US President Joe Biden held his first press conference for 2022 yesterday, marking his one year in office. Headlines have been dominated by his statements on Russia’s seemingly imminent invasion of Ukraine with it being clear that not all responses by the NATO allies have been agreed to as yet, however a reaction does at least seem to be guaranteed.
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So many of the single numbers that we monitor are the sum of a number of moving parts. Seasonal patterns, be they related to weather or regular events (public holidays and school holidays for example) allow economists to give some insight into where measures of economic activity are going.
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US markets will reopen today after a long weekend and it would seem that dollar strength is dominating currency movements. This strength seems to be driven by expectations that inflation will remain strong during 2022 and push the FOMC to raise rates.
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The festive season is officially over with coastal schools reopening later this week – and so for those who have not already, we need to resume (or is it remember?) our normal routines and for those with new year’s resolutions, design our new normal.
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The rapid spread of the omicron variant is prompting the return of restrictions in some countries in an attempt to slow the spread of the virus, but in others it is triggering a change in policy.
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The omicron variant is driving market sentiment and, as it spreads around the world, investors and policymakers are re-assessing the potential impact it might have on economic activity. Asian stocks continue to fall, with the MSCI Asia Pacific down 0.7%, led by the Hang Seng Index down 1.3%.
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Globally, US CPI inflation rose to 6.8% y/y in November – the largest annual increase since 1982. While the rise in inflation was broad-based, the largest contributors were fuel and food prices as well as prices of used cars and trucks, and new vehicles.
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Globally, equity stocks closed Thursday’s trading session relatively weaker on a combination of profit-taking ahead of the US CPI release today and renewed concerns over omicron and restrictions.
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Studies on omicron show that although vaccines are not as effective against the new variant, protection can be reinforced via boosters. However, with daily cases on the rise, UK Prime Minister Boris Johnson has tightened pandemic rules, recommending that people work from home and mandating the use of so-called vaccine passports in large venues.
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The S&P rose yesterday as optimism around omicron gained traction. This risk-on sentiment was enhanced by China’ RRR cut yesterday. Brent oil rallied to US$75.35 per barrel.
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While most global central banks (both in devoloped and developing markets) have either eluded to increasing their policy rates or have already started their hiking cycle, People’s Bank of China (PBoC) shifted toward monetary policy easing.
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In global news, US inflation is expected to have risen to 6.7% y/y in November, with core at 4.9% y/y. Inflation has come in at or above expectations, i.e. never below, every month since January.
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A shutdown has been averted! The US House and Senate passed a stopgap measure that allows the federal government to continue operations through to 18 February 2022.
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As we enter the last month of 2021, I find a lot of conversations with friends and colleagues are looking at what a, generally, unpleasant surprise 2021 has been. After all, we entered the covid-19 storm in 2020 but it was a year ago that vaccinations were going from in development to being trialed and even receiving authorisation for emergency use.
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Markets seemed to be moderating after last week’s initial panic, but remain skittish to any negative news with Moderna suggesting a new vaccination may be needed and Jerome Powell cautioning that risks to the US economy from the new variant are to the downside.
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The World Health Organisation designated the new covid-19 variant, identified in South Africa, a variant of concern and dubbed it Omicron. This variant contains a number of mutations which has resulted in concerns around the severity of the disease and the efficacy of the vaccination resulting in a growing number of countries shutting borders to people travelling from Southern African countries, or imposing strict quarantine measures, other countries are closing their borders to all foreign travellers as Omicron is being identified in an increasing number of countries.
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Today is Black Friday – a day renowned for its super sales – which started in the US (for the day after Thanksgiving) but has definitely become something of a global phenomenon. However, I feel in South Africa, Black Friday has a slightly different connotation today.
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I love a wave, growing up in Johannesburg, I was fortunate that my parents chose to do holidays all over South Africa, beach holidays, bush holidays and even visits to the Drakensberg.
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Focus remains on oil and monetary policy. The announcement of the release of strategic oil reserves by the US has officially been made with further announcements coming from India and the UK, while announcements are expected still from China, Japan and South Korea.
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As promised, President Joe Biden has announced his nomination for Chair of the FOMC before Thanksgiving – yesterday, to be precise. Despite muddying the waters somewhat by putting Lael Brainard in the mix, it would seem that the President decided to stick with the incumbent, Jay Powell
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It has been a particularly busy November in SA, however, with the final MPC, the major policy events for the year were concluded and thus we can shift our focus to tying up loose ends before a well-deserved rest over the festive season.
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The SARB MPC raised the repo rate by 25bp to 3.75% at its final meeting for 2021. The balance of preferences was no longer unanimous, with three members of the committee preferring a hike and two voting for a hold.
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Oil prices are in the spotlight today – to be honest, for most of this year they have been playing a leading role in the narrative of inflation and economic growth alongside co-leads of covid-19 (this is almost a demotion after being the sole leading role of 2021) monetary policy and supply-chain shortages.
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After what was largely a quiet, sideways kind of day, US retail sales for October were released and produced the third consecutive month in which the print was higher than expected. This drove the dollar stronger and increased support for expectations for an earlier Fed funds hike as the print suggests that concerns over economic weakness have been possibly a little exaggerated.
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Pragmatic is the word I’d use to describe the communication coming out after President’s Xi Jinping and Joe Biden met face-to-face at a virtual summit yesterday. A variety of topics were discussed and there seems to be a clear understanding that there are areas for cooperation that are mutually beneficial for these two global giants (and consequently likely to be beneficial for the world as a whole), but there remain significant areas of disagreement.
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COP 26, the conference, is over. The work though only really begins now. A “much watered-down” agreement was signed by 200 participant countries, which speaks to how seriously the issue of climate change is actually being taken – cooperation between 200 countries with differing specialisations, differing sources of affordable energy and at different stages of development is quite a feat.
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Two down, one to go! That is right, we have now seen the second major domestic event of November, the MTBPS, come and go (the first was the local government elections). All that is left for the month is the November MPC. Thereafter we begin the steady slowdown to summer holidays and inevitable build up to another new year.
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It has been a bit more delayed than normal, but at long last, today, we will get a mid-year update on the state of SA’s government finances
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The long wait is over – it is US CPI day! The Bloomberg consensus survey shows a median expectation of a print of 5.9% y/y, which if realised will be the first time that inflation this high since 1991.
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The Federal Reserve has made headlines on multiple fronts overnight.
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There is a saying that all publicity is good publicity. I’m starting to think that Elon Musk must be follower of this school of thought with his most recent foray into the public eye a poll as to whether he should sell 10% of his current stake in Tesla in response to calls for some of the richest Americans to be taxed on unrealised capital gains.
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Tantrum free! I think this is an appropriate description of the global market reaction to the announcement by the Federal Reserve that it would start asset purchase tapering before the end of the month.
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We often speak about geopolitical tensions affecting the risk sentiment in markets, however a growing tension is that between the need for energy for economic activity to continue and grow and climate change. Thus, funding for fossil fuel exploration and production is drying up threatening supply to those stations which use these more traditional feedstock to produce the electricity upon which the world is so dependent.
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The Reserve Bank of Australia has removed its bond-yield target and we await decisions this week from the Fed and Bank of England, with the announcement of asset-purchase tapering all but certain from the Fed, while expectations are finely balanced between a rate hike and no rate hike for the Bank of England.
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South Africa faces a most welcome long weekend, unusual for the month of November, but with a public holiday declared for Monday to ensure that SA’s voters have ample opportunity to make it to a voting station on Monday and make their mark.
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Markets leave me scratching my head more often than not. They don’t always move in directions that make sense, given my understanding and analysis of the factors driving the economy.
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The commentator’s curse – when you say one thing and the opposite happens (and a phrase helpfully provided to me by a wise and experienced colleague!).
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It has been a year of upward movement – economic improvement, private-sector space launches, oil prices, inflation and markets.
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I have said this multiple times this year, but the pandemic remains a central area of concern. Last week we highlighted the rising infection rate in the UK. But has the virus has also intensified in parts of China which has resulted in increased restrictions.
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“The seeds of a crisis are sown during the party.”
These wise and thoughtful words came from Professor Carmen Reinhart in the second session of the BIS-SARB Centenary Conference which will conclude later today.
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Shots have been fired. Not ammunition-fueled but rather verbal shots as Prime Minister Mario Draghi has singled out the UK’s approach to opening its economy as an example of what “not to do”.
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As much as markets are volatile, the factors driving that volatility don’t change quite so much, rather it is uncertainty around these factors that drive market volatility. As we hit mid-week, this is very much the case. Markets continue to worry about inflation and monetary authorities’ responses, a slow down in the global economic recovery and covid-19.
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Inflation remains the focal point for global markets. While it seems that the oil price has come off recent highs, it remains elevated at a level above US$80/bbl.
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It has been just over a month since Netflix released Squid Game, a Korean survival drama. In that short period, it has become the streaming giant’s most popular show and created an estimated US$900m in value, a 4000% return on the cost of production – now that is what I call a successful investment! I must be one of the very few people who hasn’t watched it yet, but honestly, given the dystopian nature of our reality, I have tended to keep my viewing habits to shows with a “feel good” factor!
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After today, there will be 11 more Fridays until the end of the year (interestingly, the final Friday of 2021 will fall on the final day of 2021). So 11 more opportunities after today to sigh TGIF! That said, it is likely fewer for those in SA as I have no doubt that vacation plans,
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Prices and power – the central themes dominating the news flow overnight. The US’s September CPI rose 5.4% y/y, beating expectations for a print of 5.3%. It seems that there was a broad increase in the prices of a number of goods, largely in response to continued supply chain bottlenecks.
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There is much a foot around the world right now. The IMF/WB annual meetings are being hosted virtually, with the IMF’s latest forecast suggesting slightly weaker global growth of 5.9% in 2021.
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Not to labour the point (no pun intended) but this is the last day of my daily musings before I go off on maternity leave. Reality has firmly set in. I recall the basics, but, like policy tightening and the trajectory of the oil price, there are certain things I’ll need to figure out along the way.
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USD/ZAR opens at 14.96; EUR/ZAR at 17.27; GBP/ZAR at 20.36; CNY/ZAR at 2.32; and XBT/USD (Bitcoin) 54,184.49
I knew not to be too smug when reading about power shortages in China towards the end of September – after all, we in SA have experienced quite a bit of load-shedding this year alone and in preceding years, and most recently last night when load-shedding resumed after a few months reprieve. That said, some of the shortages in China have been related to its goal to reach peak carbon emissions by 2030, with coal production and use having been limited
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As the weekend beckons, some good news seems to be heading our way. Relief to markets has come from hints that an agreement between Republicans and Democrats is in the making – not to lift the debt ceiling for an extended period, but rather to give US lawmakers a bit more time to conclude negotiations over President Biden’s economic plan.
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To all the Grammers, Facebookers and ardent WhatsApp messengers, of which I am ashamedly one, I trust the global outage did not add to your social anxiety. It’s astonishing how reliant we’ve become on social networks to remain relevant and connected.
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Having been contacted by many a Queen fan yesterday, I was at odds with myself on how to write an equally as entertaining commentary today.
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In keeping with the various weather analogies I’ve used over the last few weeks, I thought I’d use Queen’s Bohemian Rhapsody to not only describe conditions outside but also onscreen. “Thunderbolts and lightning, very, very frightening me”.
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The issues dominating this week – an energy crisis in Europe, electricity constraints in China and the imminent shut down of the US government continue to dominate headlines as Wednesday begins.
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Last year the world was speaking about a one in a century event – the pandemic. But now in Brazil, they are experiencing the worst drought in a century. Droughts, floods and ideal agricultural conditions are a cycle well known by farmers across the world.
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We really seem to be moving from one crisis to the next these days, and the crises seem to becoming in thick and fast. Obviously the dominant global crisis has been the pandemic, and while it continues to impact economic activity and health, it is far less of a crisis than it was a year or more ago.
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Our journey from policy announcement to policy announcement continues, but a significant milestone has been reached. The FOMC has announced that conditions continue to improve, thus the committee feels that it will be appropriate to start tapering asset purchases soon – which is seen by markets to mean before the end of 2021.
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It is a week of holidays, China and Hong Kong have observed public holidays this week and I know I am not the only South African counting down the days to Friday’s observation of Heritage Day.
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Fostering strong mental health is as, if not more, important than physical wellbeing. Since the onset of covid-19, there’s been a strong appreciation of social, emotional, and psychological welfare.
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Have you ever spun around with your eyes closed? In that moment, you’re completely removed from your surroundings and gravity doesn’t seem to exist. At some point, whether by choice or sheer exhaustion, you stop! Your eyelids open and lightness gives way to bewilderment. That pretty much sums up the way I feel this morning after perusing overnight trends and contemplating the data calendar for this week.
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Like Keynesians and Neo-Classicalists, there are chartists and fundamentalists. The former rely heavily on technical valuations to explain market movements, while the latter defer to economic theory. The intersection of the two practices often results in erratic pricing.
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It’s one of those days where weaving a cohesive and well-structured storyline is proving challenging. Newspapers are brimming with headlines and yet we’re searching for catalysts to steer market moves. As anticipated, the monthly US CPI print heightened anxieties over Fed tightening.
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And just like that, the US’ August CPI print has come and gone. With a slightly weaker-than-expected outcome in monthly terms (0.3% m/m relative to expectations of 0.4%) and with the measure excluding food and energy also coming in lower than expected, markets continue to speculate about the Fed’s timing and pace of asset purchase tapering, and will hopefully be given, at the very least, more direction a week from now
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Data dependency is something mentioned a lot these days when discussing expected policy decisions. What we don’t mention as much but is clearly the case is that markets have become just as data-dependent when forming expectations.
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South Africa’s third wave of covid-19, dominated by the delta variant, has seen South Africa’s stricter lockdown levels last almost 3 months – after all we moved to level three lockdown in June. Fortunately, the powers that be feel that this wave has now dissipated enough for SA to move down to lockdown level 2.
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I’ve hit many a brick wall this morning in trying to pen something inspirational to close the week. Nothing is impossible, I’m told. If NASA’s space rover Perseverance can collect and successfully warehouse mineral samples from the surface of Mars, then we can make it through to the end of another emotionally draining week.
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Representatives of SA’s economic policy cluster have been quite vocal over the last two days. Whether in parliamentary briefings or keynote speeches, the messaging has been intriguing.
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Representatives of SA’s economic policy cluster have been quite vocal over the last two days. Whether in parliamentary briefings or keynote speeches, the messaging has been intriguing.
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Market activity will return to full speed today as the US returns after being on holiday on Monday. There is plenty of news in circulation for participants to contemplate.
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Last week ended with a bit of a surprise. The highly anticipated US payrolls data showed that employment only increased by 235,000 people, which was substantially lower than the Bloomberg median expectation for 733,000 people.
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The weekend beckons, but the working hourse of Friday, 3 September, promise some interesting news. Of greatest interest will be the US’s August jobs report which has markets expecting an increase in the number of people employed of 725,000 and as a result a decrease in unemployment.
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I was speaking to a colleague in KZN recently who reminded me that while the unrest in KZN and parts of Gauteng is over a month in the past, for some there are daily reminders of the events of July.
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1 September, a day to mark the start of spring in the Southern Hemisphere – there is still a chill on the air in the mornings, but the days have become gloriously warm and sunny – the end of hunkering by a heater at night and longer sunlit hours beckon.
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How often have you stared at an exotic screensaver over the last 18 months, longing to travel to far-reaching destinations? A privileged thought for those that can afford it but a guilty, perhaps even necessary, pleasure for most after five hundred and something days in lockdown.
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Local news has dominated our narrative this week. The debates over a basic income grant, the pros and cons of privatising SOEs, the challenges posed by vaccine hesitancy, options to recover lost teaching time and insurance claims by people with expired driver’s licenses have allowed for robust water-cooler conversation.
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