SOUTH AFRICA: DA Hopeful On Budget Compromise, Kganyago Backs Lower CPI Target
- SARB Governor Lesetja Kganyago reaffirmed his call for a lower inflation target, arguing that keeping it at the current level (+3.0%-6.0% Y/Y range) will stifle economic growth, reduce South Africa's competitiveness and incur costs on the government in the form of additional debt-servicing costs. He said that the opponents of his proposal mistakenly think that "we can just grow our way out of our fiscal problems." The central bank has been in talks with the Treasury to develop plans for an overhaul of the inflation target.
- Democratic Alliance (DA) leader John Steenhuisen said that the Government of National Unity (GNU) was "closer than many people think" to a compromise on the delayed National Budget and he remained "hopeful that we will be able to find each other." Separately, DA spokesperson Karabo Khakhau told IOL that the African National Congress (ANC) should publicly identify its preferred coalition partner amid its efforts to find support for the Budget.
- The ANC's National Executive Committee (NEC) starts its three-day policy meeting today. The organ will discuss the ongoing Budget impasse ahead of a key vote in parliament next week.
- The National Treasury will sell 1.875% 2033, 5.125% 2043 and 5.125% 2058 linkers later today.
- Budget data for February will cross the wires at 12:00GMT/14:00SAST.
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SWEDEN: Producer Price Acceleration Underscores Riksbank Caution
Swedish January producer prices rose 3.5 % Y/Y (vs 2.0% prior) and 1.7% M/M, while the price index for domestic supply (which measures producer prices for domestically manufactured goods solid in Sweden and imported prices) rose 3.6% Y/Y (vs 1.9% prior) and 1.5% M/M. 3m/3m domestic supply prices accelerated across components, potentially adding upside risks to future CPI outturns. Tomorrow’s Economic Tendency Survey (which includes business price plans) and the Riksbank’s business survey will be important inputs for the inflation outlook, and by extension near-term monetary policy outcomes.
- Higher imported crude oil and domestic electricity prices meant domestic energy supply inflation rose 7.6% M/M, but this nonetheless corresponded to a -1.0% Y/Y rate.
- The stronger krona likely weighed on non-energy prices, though all components still saw sequential increases (capital goods 0.3% M/M, consumer goods ex-food 0.8% M/M and food 0.3% M/M). The krona will likely have a larger downward impact in February (the KIX effective exchange rate index has fallen 3% this month alone).
- Food prices were still 7.6% higher than a year ago (vs 0.2% prior), while consumer goods ex-food inflation was 5.2% Y/Y (vs 2.5% prior).
- Excluding energy, domestic supply inflation was 4.7% Y/Y (vs 3.9% prior), 0.8% 3m/3m (vs 0.5% prior) and 0.3% M/M.
GOLD TECHS: Bullish Outlook
- RES 4: $3000.0 - Psychological round number
- RES 3: $2980.7 - 2.0% 10-dma envelope
- RES 2: $2962.2 - 2.00 proj of the Nov 14 - Dec 12 - 19 price swing
- RES 1: $2956.2 - High Feb 24
- PRICE: $2911.8 @ 07:21 GMT Feb 26
- SUP 1: $2879.0 - 20-day EMA
- SUP 2: $2834.3 - Low Feb 6
- SUP 3: $2794.6 - 50-day EMA
- SUP 4: $2758.3 - Low Jan 30
Despite Tuesday’s pullback, a bull cycle in Gold remains in play. Recent fresh cycle highs once again confirm a resumption of the uptrend and maintain the bullish price sequence of higher highs and higher lows. Moving average studies are in a bull mode position too, highlighting a dominant uptrend and positive market sentiment. Sights are on the $2962.2, a Fibonacci projection. The first key support to watch is $2879.0, the 20-day EMA.
BUNDS: A busier Overnight session for Bund
- A busier Overnight session for Bund, mostly saw some unwind from Yesterday's rally, a small pullback after Bund closed Monday's gap up to 132.60, printed a 132.59 high Yesterday, following the US poor Data.
- The German GFK saw a miss on the Cash open, but not a market mover.
- US House Republican passed a blueprint Budget calling for deep cut in safety programs, paving the way for $4.5 Trillions in Tax Cuts, and Investors will have to assess how it will impact the Economy.
- US 10yr Yield has bounced from Yesterday's low print of 4.2811%, its lowest since mid December.
- The June contract is now front Month in Treasuries, but be aware that the TYA spread is pretty much flat, so both March and June trades at similar levels.
- Technically for the German Bund, support is at 131.85 (gap), and resistance at 132.60 (gap).
- There are no Tier 1 data for the session, focus remains on Friday's releases.
- SUPPLY: Germany 2036, 2038 (Equates combined 17.7k Bund) should have limited or no impact. US Sells $28bn 2yr FRN reopening and $44bn of 7yr Notes.
- SPEAKERS: Fed Barkin, Bostic, BoE Dhingra.
