The US inflation rate came in at 5.4% in September, reaching a new 13-year high after the 5.3% reading in August. Major contributors to price pressure include food, shelter and energy prices.
Markets are starting to weigh in the realistic possibility of a sustained high-inflation environment, as opposed to the “transitionary” narrative put forward by many of the world’s largest central banks. Investor scepticism can be seen in the bond market, with bond yields on 10-year US government bonds rising by roughly 10% over the past month, from 1.45% to 1.60%. Federal Reserve policymakers have also agreed that the tapering of emergency pandemic support should start in November or December, as stated in the minutes from the latest Federal Open Market Committee (FOMC) meeting.
The Dollar Index (DXY) fell by 0.46%, from 94.52 to a low of 94.00, on the day of the inflation rate data release. The EUR/USD pair moved 0.29% higher during last week’s trade, closing at 1.160. Additionally, GBP/USD made a coinciding move to the upside, appreciating by 1.01% and closing the week just below the 1.3750 resistance level.
The rand moved in accordance with recent inflation data and developed market currency weakness. Last week, both USD/ZAR and EUR/ZAR made drastic moves to the downside, in accordance with their safe-haven status, depreciating by 2.40% and 2.14%, respectively. The Dollar closed off the week at R14.60 against the rand, from an open of R14.96 on Monday. The Euro’s similar price trajectory saw EUR/ZAR fall from R17.30 to R16.92 during the week’s trade.
The Pound managed to endure the recent inflation headwinds relatively well, compared to its safe-haven counterparts. The sterling held up better against the wave of emerging market strength, nevertheless shedding 1.40% in value against the rand. After kicking off the week at R20.36, the GBP/ZAR pair closed off on Friday at around the R20.06 mark.
Locally, we had the release of South Africa’s retail sales data for August. Retail sales experienced a 4.9% month-on-month growth, after the previous month’s 11.1% contraction. However, despite the monthly uptick in retail activity, year-on-year figures report a 1.3% decline in retail sales. Mining, gold and manufacturing production figures were also released, yielding mixed reported results for the month of August.
This week, South Africa’s September inflation rate reading will be released. Analysts expect inflation to rise up to 5% (YoY), after an increase from 4.6% to 4.9% was recorded in August. Furthermore, the UK will join in reporting its most recent inflation figures, for September. Year-on-year inflation figures are expected to hold steady at 3.2%, while month-on-month numbers are predicted to rise by another 0.4%, adding to the 0.7% uptick in August. Eurozone inflation numbers are also scheduled for release.
Weekly market events
Tuesday 19 October
US: Building permits (September)
US: Housing starts (September)
Wednesday 20 October
UK: Inflation rate (September)
EU: Inflation rate (September)
Friday 22 October
UK: GFK Consumer confidence (October)
UK: Retail sales (September)
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