US inflation news buoys rand and the JSE

The rand had its biggest gain in two months on Thursday as the JSE tracked firmer global markets after another positive US inflation report.

The Bureau of Labor Statistics reported that the producer price index (PPI) fell 0.5% in March from Februatry’s figure. That was lower than all estimates in a Bloomberg survey. On an annual basis the PPI rose 2.7% from a year ago, the smallest gain in more than two years, Bloomberg reports.

The figures come after Wednesday’s publication of the consumer price index report for March, which shows headline inflation pressures eased, though core CPI remained elevated.

Minutes of Federal Reserve’s most recent policy meeting, which were published on Wednesday evening, show officials fear the economy could tilt into mild recession later this year in the wake of the banking crisis. “Federal open market committee minutes indicated that the Fed is considering pausing interest rate hikes,” said Citadel Global director Bianca Botes. “That, coupled with a moderation in US inflation, saw the dollar tumble to a two-month low against its peers.”

The softer dollar drove the rand to R18.05/$, the strongest level in a week, though Botes cautioned that “global recession fears, ongoing loadshedding, and a poor growth outlook, are all keeping the rand under pressure against major currencies”.

At 5.07pm, the rand had strengthened 1.75% to R18.0764/$, 1.37% to R19.9588/€ and 1.58% to R22.6151/£. The euro was 0.54% firmer at $1.105.

TreasuryONE currency strategist Andre Cilliers said the rand may battle to sustain any move below the R18 level, with headwinds from “Eskom ramping up load-shedding to stage 6, while concerns are being expressed about the country’s deteriorating terms of trade and portfolio flows remain negative”.

The JSE all share firmed 0.93% to 78,462.77 points. Precious metals rose 3.1%, industrials 1.43% and resources 1.21%. The top 40 gained 1.03%.

Some analysts say markets may be overestimating chances of a US rate cut despite latest positive data. “While PPI inflation slowed further in March due to the high base effects of 2022, inflation risks remain skewed to the upside, ” said RMB economist Siobhan Redford. “One of the main risks is the recent recovery in oil prices brought on by the surprise announcement by Opec+ of a significant supply cut.”

At 6.34pm, the Dow Jones industrial average was 0.63% firmer at 33,857.19 points, while markets in Europe were also firmer.

Gold gained 1.38% to $2,041.5/oz and platinum rose 3.11% to $1.046.6/oz. Brent crude was 0.46% weaker at $86.76 a barrel.