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MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
SOUTH AFRICA
- 3x6 FRA-Jibar spreads widened sharply this morning following PPI data that surpassed expectations by some distance – printing at 7.8% y/y vs 7.3% exp & 0.9% m/m vs 0.4% exp. The higher number was driven primarily by electricity prices and intermediate manufactured goods and precipitated a notable reaction in forward rates.
- Spreads widened +21bp following the announcement and now reflect expectations for +63.7bp in hikes over a 3-6m horizon vs +42.7bp prior to the reading.
- Expectations for almost three 25bp hikes over the forecast horizon is a stark departure from the SARB's unanimous hold in the prior meeting, with international markets positioning more aggressively for hikes in the coming months.
- Upside pressure from the energy market as a result of sky-high natgas and oil prices is the root cause of the pressure, with SA as a net importer being highly vulnerable to dramatic shifts in oil prices.
- Interestingly, 5 & 10Y breakevens had decoupled slightly from oil's upward trajectory from 10 October with expectations tentatively stabilising, but now seem to be looking to resume their uptrend following today's print.
- This places the SARB in a precarious position going into next month's meeting with a number of weeks left until the 18 Nov meeting with consensus split on whether the SARB will catch up with the policy normalisation trend sweeping across EM.
3x6 FRA-Jibar Spreads
5& 10Y Breakevens vs Oil
MNI London Bureau | +44 020-3983-7894 | murray.nichol@marketnews.com
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
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