While you were asleep: Putting a lid on price pressures

The world’s now firmly in a hiking cycle. The latest central bank to attempt putting a lid on price pressures is our emerging market peer New Zealand, raising interest rates by 25 basis points for the second time in two months and signalling it will need to tighten policy more quickly than previously expected to contain inflation.

Locally we’ve seen our interest rates hiked by the same margin just last week and the forecast is for more to come. The SA Reserve Bank’s quarterly projection model implies a 25 basis points rate hike at every MPC meeting next year, but the model probably overstates the extent of tightening that will be necessary, according to Old Mutual Wealth Investment Strategists Izak Odendaal and Dave Mohr.

While investors are obsessing about Fed taper talk – Fed minutes later today is expected to give a read on price pressures and the economic recovery – and cheering the reappointment of Jerome Powell in the Fed hot seat, something quite different is happening in the halls of dozens of central banks across the globe that could derail Powell’s Fed inflation-fighting plans and sink stocks, cautions economic research analyst Callum Thomas. Ten months ago he “half-jokingly, half-seriously” tweeted that a 300 basis-point rate hike by the Bank of Mozambique was a “Sign of things to come…”. Since then, he writes, he counted 94 interest rate hikes across 36 central banks so far this year.

In the markets, Asian stocks are already declining – Japan’s Topix, South Korea’s Kospi, Hong Kong’s Hang Seng and China’s Shanghai Composite indices were all down this morning – as traders weigh economic risks from tighter monetary policy.

Going against the grain, Turkey’s President Recep Tayyip Erdogan’s intensifying campaign for lower interest rates is plunging the country and its currency deeper into crisis. Bloomberg reports even Japan’s normally risk-loving day traders are dumping the lira wholesale. The contagion of the lira’s freefall – the currency has lost about a third of its value in November alone – is not missed on its emerging market peers. “Risk aversion remains relevant, with emerging markets still on the back foot as capital outflows continue and a rush to safe havens,” comments TreasuryONE.

The rand gave up some of its overnight gains to last trade at R15.84 against the US dollar. Key drivers for the currencies remain the contagion spillover effect from Turkey and the rampant US dollar and the Fed minutes this afternoon could add some pressure for further weakness.

Best for borrowers to start paying off debt while rates are still at manageable levels!

Here’s a roundup of the world’s top and most interesting headlines:

SA Business

Ramaphosa calls end to uneven trade between South African and Kenya – Fin24
R60 billion worth of energy projects in the pipeline for South Africa – BusinessTech
‘The decision simply went against him’: Reserve Bank denies blocking Pityana as Absa chair – Fin24

Global Business

India announces bill to ban cryptocurrencies – AFP
The 24-year-old aiming to dethrone Victoria’s Secret – Bloomberg
‘Poverty itself is an indignity’: One fund manager vows change – Bloomberg

Tech

Samsung plans $17 billion Texas chip plant, creating 2,000 jobs – Bloomberg
Apple sues Israeli spyware maker for targeting its users – AFP
How Einstein, Elon, and Uncle Sam could ruin cryptocurrency by 2050 – TNW

Markets

Asian markets fall again on inflation fear as oil prices extend gains – AFP
Oil extends gains as release of strategic reserves underwhelms – Investing.com
Meme stocks suffer worst day since June as risk-off rages – Bloomberg

Opinion/In-depth

The future of politics in South Africa shifts after coalition window closes with seismic changes at metro level – Daily Maverick
EUSEBIUS MCKAISER: DA finds mayoral success but there are no winners in SA’s political swamp – Business Live
Play the game, not the man: Eskom’s Andre De Ruyter needs all the support he can get if load shedding is to become a thing of the past – Daily Maverick