POWELLS TESTIMONY EFFECTS: United Stated Congress on 10 July listened to its Fed Chair Jerome Powell’s testimony on economic outlook and policy were he signaled that an interest rate cut is imminent despite the strong Jobs figure in June were payrolls came in better than expected at 224,000 above analysts’ expectations. The US Fed has over the last few months adopted a patient approach to monetary policy as it observed economic data in light of global macro backdrop. During that period markets saw the case for a rate cut strengthen through overall weaker global growth, waning manufacturing and industrial productivity globally weigh. In essence from a US stand point the stronger labor market is inadequate because it doesn’t boost wages and therefore inflation in the US remains subdued. In the aftermath of the testimony to congress, riskier assets rallied on the back of a weaker dollar with Fed futures now indicating 98% possibility of a 25 basis points rate cut on 30 – 301 July and a 2% likelihood for of a 50 bps cut. Fed futures also price in a 60% probability of a 75 bps by year end factoring in 3 rate cuts.
GLOBAL STOCKS/COMMODITIES: US stocks were higher this morning with the S&P500 briefly flirting with highs of 3,000 for the first time this year. Asian stock futures remain in the green as gold nudged higher at $1,423.95/ounce. Crude is holding firm with Ice Brent international benchmark at $67.25/bbl. as West Texas Intermediate (WTI) trading for $60.72/bbl.
BASE METALS: Copper led the rally jumping 2% on the London Metal Exchange to levels just shy of $6,000 a metric ton as base metal markets priced in US -China trade discussions that commenced a day ago with China’s Vice Premiers Liu had a call with US Trade Representative Robert Lighthizer. The bullish reaction of metal prices is also a reflection of rise in demand for riskier assets given a weaker dollar autopsy of Powell’s testimony to Congress.
KWACHA PERFORMANCE: Currency in the copper producer opened at 12.55 for a dollar after closing previous session at 12.52 with the market flows skewed to the supply side during the tax cycle. Markets have continued to see a flurry of conversions which will persist to the 16 July when the tax window closes. Dollar – Rand is trading at 13.9476 as Rand – Kwacha settled at 0.897.
KWACHA LIQUIDITY: Taxes absorbed market cash triggering the central banks presence in the Open Market Operations (OMO) injecting K580 million. Tight liquidity will continue in 11 July trading and this will support the Kwacha to a further rally.
ON THE HORIZON: US inflation figures as expected today as producer price inflation will print on Friday 12 July/ US Fed Chair Jerome Powell will address congress for the second time/European Central Bank minutes are expected midday today.
Compiled by Kapesa Singogo