ZAR under pressure in afternoon trade on Thursday , tracking the euro/US dollar movement, as attention switched back to Spain’s fiscal woes and after the US Federal Reserve’s statement. The risk-off scenario is slowly creeping back in after the Fed’s disappointing statement. The US Fed extended its Operation Twist programmed – whereby the central bank sells short-term Treasury bills and puts the money into longer-term securities – by $267bn through to the end of 2012. The Fed disappointed the market as expectations were far greater as it revised down its economic growth forecasts for the US from 2.4 percent–2.9 percent at the previous FOMC meeting to 1.9 percent–2.4 percent.
The rand is trying to consolidate around this level following the strong run it had in recent sessions. Spain’s borrowing costs leapt in a major bond market test as Madrid prepared to unveil the price of a banking rescue that has fears of a full-blown bailout. The Rand saw local importer demand throughout the morning again pushing the Rand towards 8.2800. At the levels of yesterday there was two way business all day long but the rumours circled the market throughout the day of downgrades by Moody’s of some of the major UK banks which put pressure on the GBP and this took its toll on the Eur. These rumours proved to be true but it was more than just major UK banks that were downgraded, there were also major US banks downgraded One must not be too complacent as the sovereign debt issue, as it is still very much a reality and lots more still to be done. The Spanish bond yields and Greek news are still the main drivers of the rand. It’s also widely expected that we are going to see large QE as global Central Banks gear up to start printing money and try and stop the world slipping into further depression. I think exporters should take advantage of these higher levels and sell some of their proceeds if not spot look at future proceeds and look at forward cover one year out.
[box]The Rand saw local importer demand throughout the morning again pushing the Rand towards 8.2800[/box]
3 Reasons for yesterday’s (Jul 16 -2012 ) market blowout
The week draws to a close with risk currencies looking fragile, commodities lower, equities in red and USD Asia trending up. Not the kind of close you would expect in the week when Greek electorate voted to stay in Euro zone and when Fed delivered an extension of Operation Twist. However pessimism still reigns supreme. Yesterday’s risk selloff was led by three main reasons
Moody’s Bank Downgrade:
- The primary mover was the buildup to the banks downgrade by Moody’s. While it has been expected for some time now broad price action indicated that market priced it in yesterday’s NY session. It has been steadier after the review report actually came out.
Spanish Bank Audit:
- Results from the Spanish banking audit suggest that banks need around USD78bn for bail-out. Spain said that the details of the stress test on each bank will not be available until September. This made the investors nervous.
Equity Sell Off:
- While bank’s led the equity move lower yesterday, a big street player also gave recommendation to short S&P. This added fuel to the fire.