ZAR: ZARJPY Extends Rally from September Lows to 7%
Sep-25 11:57
The significant rally in ZAR this month, combined with underperformance of JPY in the G10 space, has prompted an impressive ~7% bounce in ZAR/JPY off the September lows. Positive internal and external SA fundamentals (e.g. ZAR denominated gold prices re-approaching April’s all-time highs, additional China stimulus measures) have underpinned the rally. Consequently, YTD (and indeed MTD) spot gains vs. the greenback are greater than that of all other EMEA currencies.
- A continuation of ZAR strength would set sights on 8.4489 for ZAR/JPY, the 61.8% retracement level of the July 1 – August 5 downleg. For USD/ZAR, the pair has continued heading south this week, with attention on 17.1388 next, the 1.00 projection of the 1 Jun - Jul 27 - Oct 6 2023 price swing. Note the 14-day RSI for USDZAR has hit its lowest since 2021, with the indicator in 'oversold' territory at 26.32.
- Regarding the SARB, we think that in light of a considerably improved inflation outlook and the start of rate-cutting cycles by major central banks, the SARB will continue to loosen monetary policy in November. However, the MPC’s cautious approach and its concern over a plethora of risks will likely keep the magnitude of cuts limited to the standard 25bps. The favourable rate differential may therefore continue to bias ZAR higher.
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EGBS: Pressured By Higher Oil, Germany Ifo Doesn’t Move A Weak Needle
Aug-26 11:57
- Whilst fractionally off lows, EGBs hold most of the sell off since pressure from crude oil pushing higher on the Libyan force majeure.
- EGBs continue to underperform Treasuries, with the latter seeing haven flow since the weekend exchanges between Israel and Hezbollah, and with both sides warning they could strike again.
- German 10Y yields pushed to 2.263% to nudge above pre-Powell levels on Friday, levels it has struggled to hold above since Aug 8, before dipping to 2.258% (+3.5bp)
- No real standouts across major European countries in 10Y space (Italy underperforming modestly with +4.1bp).
- The EuroStoxx 50 retracing earlier losses helps see peripheral spreads little changed on the day with BTP-Bund at 134.8bps (+0.6bp) and Oat-Bund at 70.6bps (-0.1bp). The former is the lowest since late July but remains above the sub-50bps seen prior to June’s political breakdown.
- In data, the German Ifo survey offered a small beat but nevertheless saw further deterioration whilst there is greater focus on tomorrow’s final German Q2 GDP release before European preliminary August CPI readings on Thu/Fri.
STIR: BLOCKs: Mar'25 SOFR Call Flys vs. Green and Blue Mar'25 Call Spreads
Aug-26 11:36
- 2,500 SFRH5 96.00/96.50/97.00 call flys vs. 2QH5 97.25/97.50 call spds, 11.5 net/SFRH5 over at 0727:17ET after:
- Block, 5,000 SFRH5 96.00/96.50/97.00 call flys vs. 3QH5 97.25/97.50 call spds, 4.5 net/SFRH5 over at 0454ET
US TSY FUTURES: Reversing Overnight Gains
Aug-26 11:31
- Treasury futures have reversed the modest overnight bid in the last few minutes, mildly in the red for the most part, 2s holding slight bid following block sale of 2,500 at 103-12.75 (103-12 last, +0.125).
- Despite London close for bank holiday, heavier volumes so far (TYU4>507k) are driven by Sep/Dec rolls, not any particular headline driver for the reversal. Curves a little steeper: 2s10s +1.243 at -10.599, 5s30s +1.358 at 40.409.
- Cross asset roundup: US$ index hear steady (+.085 at 100.803), crudes trading higher (WTI +2.0 at 76.83) on Libya announcing force majeure recently, not to mention mid-East tension following after Israel bombed target in Lebanon.
