Today’s Talking Point
US Wholesale inventories m/m: Nov F
Expected: 1.20%
Prior: 1.20%
Analysis: The wholesale inventories and sales report will provide the market with insights into the level of goods acquired for the purpose of resale without further processing. It uses monthly survey data and is useful in that it helps investors gauge supply and demand dynamics in the retail sector. The initial November print showed inventories fell sharply through the month, suggesting retail activity was picking up amid strong demand as the US economy continues to grow from strength to strength. Should this be confirmed in the final print, it will add to other data pointing to a strong economic expansion in the States, supported by pent-up demand and extreme fiscal and monetary stimulus.
Rand Update
The ZAR capitalised on a retreating USD on Friday, building on its late-week advance to ultimately end the first week of 2022 more than 2% stronger than it started. Friday’s 1% appreciation took the ZAR to a two-week high of R15.5800/$, and came on the back of a mixed December employment report out of the US. The headline nonfarm payrolls number in the report came in at only 199k, well below the 450k pencilled in as the consensus forecast on Bloomberg. However, the report showed that the US unemployment rate dropped from 4.2% to a pandemic-era low of 3.9%, which was below the Fed’s long-run estimate of sustainable unemployment and consistent with its evolving view that the labour market is near, or at, maximum employment.
Bets for a March rate hike in the Fed Funds Futures and Overnight Index Swaps markets were thus maintained, even as the USD tracked short-end UST yields lower into the weekend. The greenback’s decline came as the market’s somewhat stretched long position was squeezed slightly by the softer-than-expected payrolls number, but did not point to a material turnaround of its broader trend. Note that the USD index still remains within its recent range, and will likely continue to pivot around the 96.00 mark for a while longer as investors speculate on prospective Fed monetary tightening.
In this context, US CPI data for December, scheduled for release on Wednesday, will headline this week’s economic data card, and are expected to reflect an inflation rate topping 7.00%. This would add more impetus for the Fed to begin rate lift-off in the current quarter, and likely keep the USD buoyant. The market will also keep a close eye on Fedspeak ahead of the January policy meeting in two weeks’ time, with the confirmation hearings of Chairman Powell on Tuesday and Vice-Chairwoman Brainard on Thursday in focus. They will likely stick to the more hawkish line of communication as indicated in the…
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