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LATEST INSIGHT

MNI BRIEF: Banxico To Discuss Cuts At Next Meetings - Governor

Mexico’s central bank governor Victoria Rodriguez Ceja spoke during a virtual presentation of the central bank’s quarterly economic update for the first quarter of 2024.

MNI BRIEF: Fed Contacts Report Modest Price Growth-Beige Book

Business contacts of regional Fed banks say consumers are pushing back against additional price increases.

MNI INTERVIEW: Fed’s Next Move Could Still Be A Hike-Posen

Ex-BOE MPC member Adam Posen speaks to MNI about the Fed and the outlook for inflation.

Political Risk

North Korea Test-Fires Barrage Of Missiles, Extending Series Of Provocations

The South Korean military said that the North test-fired around 10 short-range ballistic missiles (SRBMs) into the East Sea today and an analysis of the details is currently underway. The finding has been confirmed by the Japanese authorities, with Tokyo lodging a protest with North Korea.

  • The latest barrage of missiles was fired after North Korea's failed attempt to deploy a second military reconnaissance satellite. A space rocket carrying the satellite exploded midair shortly after liftoff on Monday.
  • Some analysts drew attention to the fact that the satellite launch coincided with a trilateral South Korea-Japan-China summit held in Seoul, which reaffirmed a call for the denuclearisation of the Korean peninsula.
  • Separately, North Korea flew hundreds of balloons carrying trash and manure into South Korea on Tuesday and Wednesday, ostensibly in response to Seoul activists' efforts to send leaflets across the border.

Rand Takes Hit As CSIR Predicts Disappointing Election Result For ANC

Pressure emerged on South African assets as wires carried predictions based on the Council for Scientific and Industrial Research's (CSIR's) model, which suggested that the ANC could perform worse than initially expected.

  • The model puts ANC on 41.5%, with the DA on 22.3%, MK on 12.8% and EFF on 9.0%. It is based on an extrapolation of early results and the CSIR said it has a 2% margin of error. The predictions will be updated throughout the day.
  • It these predictions prove accurate, the ANC would need to bargain with the DA or the EFF/MK, while the prospect of forming a governing coalition with one or more smaller parties would be off the table.
  • Spot USD/ZAR sits at 18.6216, around 2,250 pips above neutral levels. Overnight implied volatility remains close to highest levels since 2020. SAGB yields shot higher across the curve.

Vote Count Underway, SARB Rate Decision Eyed

  • The vote count after the South African elections is underway, with the rand trading on the back foot as early results fuel concerns about the probability of the least market-friendly scenarios. The Electoral Commission's (IEC's) CEO Sy Mamabolo said that "evidently we are in for a higher turnout than in 2019," when turnout was 66%. When this is being typed, with 10.84% of votes already counted, the ruling African National Congress (ANC) leads with 42.57%, with the Democratic Alliance (DA) in second place with 26.04%. Should the ANC's final result be significantly below 50%, it might be forced to partner either with its archrivals from the DA, or with radical leftist EFF and/or MK parties. The prospect of the EFF and MK parties entering investors has spooked the market due to their wide-ranging nationalisation plans and populist policy proposals.
  • The South African Reserve Bank (SARB) is expected to keep the repo rate unchanged at 8.25% today. Inflation is yet to return to the target mid-point, which the central bank flagged as a condition for lowering interest rates. The decision will be announced during a press conference at 14:00BST/15:00SAST. Click here to see our preview of the decision.
  • Statistics SA will release April PPI data at 10:30BST/11:30SAST. Separately, the National Treasury will release budget data at 13:00BST/14:00SAST.

Low Congressional Approval May Dull Incumbency Advantage In November

A new survey from Gallup has found that President Biden’s approval rating and the approval rating of Congress are on a similar downtrend.

  • Gallup: “Americans’ approval ratings of President Joe Biden and Congress remain well below average. Biden’s current 39% job rating is on the low end of the 37% to 44% readings he has received since September 2021, and it falls short of his 43% term average. Congress’ latest 13% approval marks its 16th consecutive rating under 21%, the average since January 2021.”
  • Gallup notes the political significance of the data: “As he tries to win a second presidential term, Biden’s low approval rating makes him vulnerable. Americans’ poor opinion of Congress may also affect their willingness to vote for incumbents this year.”
  • NPR notes on the power of the incumbecy: "Ninety-seven percent of incumbents get reelected. Last election cycle, 100% of Senate incumbents on the ballot got reelected. Not a single sitting U.S. senator was defeated last cycle."

Figure 1: Americans' Job Approval Ratings of President Joe Biden and Congress

Source: Gallup

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