It’s inevitable. Local borrowers will have to tighten their belts even more from tomorrow when the SA Reserve Bank is set to announce an increase in interest rates, with economists pricing in another 25 basis point hike, but the bank could surprise on the upside. Following the US Federal Reserve chairperson Jerome Powell’s hawkish tone last night and a clear indication that the bank will start raising rates in mid-March, we cannot afford to fall behind the global curve and risk an exit of foreign funds.
Powell left the door open to raising rates at consecutive policy meetings, which are held roughly every six weeks. That is something the Fed hasn’t done since 2006, according to the Wall Street Journal.
Powell’s infectious sneeze sent chills through global markets, derailing a rally in technology stocks last night and sending stocks and bonds tumbling across Asia this morning. Emerging market currencies also caught the cold, with the rand weakening to R15.42 against the US dollar. “The hawkish stance by the Fed was confirmed last night, which led the US dollar to strengthen to 1.1218 against the euro. This US dollar strength was felt through the market, with not one currency left unaffected,” says TreasuryONE.
Even Bitcoin, the largest digital token by market value, declined to trade at $35,790 in Hong Kong this morning, which is about 50% off its November peak.
According to the forex trading house Powell was trying to manage fear while stating that inflation could be worse than first thought and that accommodative policy is a thing of the past, for now at least. “This uncertain tone hit risky assets like the rand with a hammer, with the local unit losing 30 cents overnight.
“Since last night, there has been a definite shift in risk sentiment, and it would not be a surprise if the rand tested the R15.50 level,” comments TreasuryONE.
Hopefully the SARB will stem the rout, but a move down could be short-lived as a rate hike will probably have been priced in already.Not even commodities were immune, with an investor shift from gold to dollars shaving more than $30 an ounce from the yellow metal price. Gold was last trading 0.41% lower at $1,812.25/oz, while palladium and platinum gave up 0.86% and 1.06% to last trade at $2,313.00 and $1,022.00 respectively. Brent Crude has failed to break above $90 per barrel and is currently trading at $89.16.
Meanwhile, investors are keeping an eye on the Russia-Ukraine crisis with the US rejecting Russia’s demand to bar Ukraine from Nato in the latest development in the standoff. For gold investors the yellow metal may still be appealing as a hedge against inflation and the potential geopolitical risks from a possible Russian invasion of Ukraine. Russia’s market power as an exporter of natural gas, wheat, crude oil, aluminium and copper could also stir supply fears and volatile price moves in these commodities.
Never an easy ride!
Here’s a roundup of the world’s top and most interesting headlines:
SA Business
A visual presentation laying bare South Africa’s R16bn Covid-19 free-for-all spending spree – Daily Maverick
Table Mountain wildfire, floods and ‘severe weather’ cost SA billions in 2021 – Fin24
Covid-19 takes no prisoners – not even the South African taxman escaped unscathed – Daily Maverick
Global Business
WTO: China can slap duties on $645 mn of US imports – AFP
Cost of living: New Zealand inflation tops three-decade high – BBC News
Peppa Pig owner sues studio behind Wolfoo YouTube character – The Guardian
Markets
Asian markets drop as Fed signals end of pandemic-era cheap cash – AFP
Bitcoin drops as Fed signal of March liftoff dents risk appetite – Bloomberg
When Cathie Wood loses, he wins, and it started with a tweet – Bloomberg
Opinion/In-depth
The destruction of state institutions is the road to ruin: We must rebuild a strong, motivated and depoliticised civil service – Daily Maverick
Human rights and COVID restrictions: what South Africans are willing to give up – The Conversation
Ahmed Areff | Who needs experts? How social media has finally destroyed the world – Fin24
Video
Pandemic gives uniform manufacturer’s business growth and happy returns – News24
Unpacking Ramaphosa’s leaked audio recording – eNCA
IMF global growth forecast slashed amid Omicron hit, inflation – Al Jazeera
Image credit: Commons Wikimedia
