Market Comment

01 May 2008

Market Overview "The dollar lost ground yesterday and this morning as the Federal Reserve cut interest rates again but hinted that this may be the last time for a while.That helped the euro rebound from a one-month low against the dollar after more data was released yesterday which suggested economic activity in the eurozone was set to slow. This has left many wondering if the ECB will change its hawkish stance and follow the Fed by cutting interest rates. The euro was hit early in the day when annual eurozone consumer price inflation fell by more than expected to 3.3 per cent in April from 3.6 per cent in March. Date from the European Commission’s economic sentiment index dropped to its lowest level since August 2005. Sterling fell to a two-week low against the dollar as gloomy data heightened the prospect that the Bank of England would have to cut UK interest rates to head off a slowdown in the economy. UK consumer confidence dived to its lowest level since 1992 while a survey showed UK house prices in April fell for the sixth consecutive month, recording their first annual drop in more than 12 years. Sterling was also hit by comments from David Blanchflower, a member of the Bank of England’s monetary policy committee, who said there was a “real risk” that the UK might fall into recession and that further rate cuts were required to prevent this. However, sterling strengthened against the dollar off the back of the Feds cut. Elsewhere, the yen lost ground after the Bank of Japan left rates on hold at 0.5 per cent, as expected, but struck a more dovish tone than expected in its twice-yearly economic outlook. " Currency pair focus "$ZAR Fed cut 25bps but, even though a potential pause in rate cuts is to follow, it has failed to convince the markets that the worse is over - with no explicit message that the end to the easing cycle has come.US Treasury Chief Paulson reiterated his view on a strong USD in interviews following the Fed decision - commenting that he was very supportive of the Fed and its actions, the market is close to an end to the turmoil and the weaker US economy is set to recover. In SA higher Money Supply and Credit growth has shown the local economy is resilient to higher rates adding further noise for an August 50bps hike after the priced in 50bps in June. On May 7th SA petrol price's will move up 6.2% and with it the inflationary effects will add fuel to the rate hike fire. SA Trade data came out at ZAR5.03bn deficit - in line with expectations. News from Eskom that they plan to suspend further scheduled power cuts after users have reduced consumption (noting its possible for a sustainable 10% reduction in usage) in the wake of recent problems - positive news for SA and the ZAR. Gold trading at $874/5 level with support still at $870. WTI June contract trading at $114.66 (resistance at $120) and Brent June trading at $112.64 - with Nigerian issues resurfacing. With SA Holiday today and tomorrow and UK Bank Holiday on Monday markets expected to remain thin. Support initially at 7.50 (low today 7.5420) with key 7.43/44 level below - with topside levels at 7.62, 7.72 and 7.80. Continue to favour buying the dips and playing the above technical levels. Watch US data this afternoon for further direction - with one eye on tomorrows Non-Farm number (following on from yesterdays ADP number that surprised to the upside at +10k against market median of -60k). " "TRY$ Today we are seeing a big sell off on the t-bill side.2yrs benchmark bond yield widened 20 bps and came to 20.60% levels ( 19.30 % comp).Rate side is pricing 100-150 bps rate hike within next 3 months. However the latest sell off gives signal that even considering the rate hike there is no major interest for t-bills. In that sense it is difficult to understand the bull model in the currency. USDTRY today last traded at 1.2780 slightly higher. I would expect another move from there to 1.30 again within next couple days. Lastly on the domestic side, today is 1st of May and there might be some tension on celebrations between unions and police in Istanbul that could come to screens " "EUR$ Today we will be looking to sell rallies to 1.5690, and take a profit at 1.5600; Yesterday, euro fell to a low of $1.5518 against the dollar before regaining some poise to stand steady around $1.5618 by late afternoon in New York. " GBP$ Today we will be selling rallies up to $1.9910 and taking a profit at $1.9850; Yesterday, the pound fell to a low of $1.9626 against the dollar before pulling back to stand at $1.9882 after the Fed cut rates. It has passed the $1.9900 lvl this morning before falling back slightly. "$JPY Today we will be buying dips at Y103.10 and taking profit at Y104.00; Yesterday, the yen lost ground after the Bank of Japan left rates on hold at 0.5 per cent, as expected, but struck a more dovish tone in its twice-yearly economic outlook. The yen fell 0.4 per cent to Y104.45 against the dollar in NY trade yesterday and was steady after the Fed meeting. The yen lost 0.3 per cent to Y162.45 against the euro and 0.9 per cent to Y206.70 against the pound. "

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