The rand firmed the most in six months on Tuesday and the JSE rallied along with its global peers after US consumer inflation came in better than expected, reinforcing the possibility of an end to the Federal Reserve’s tightening cycle.
The consumer price index (CPI) came in flat in October on a monthly basis, while the market expected a 0.1% increase. At the annual rate, CPI slowed to 3.2%, down from 3.7% in September and below expectation for 3.3%.
Headline CPI had increased 0.4% in September.
The core CPI, which strips out food and energy prices, increased 0.2% on a monthly basis and 4% year on year, against the forecast of 0.3% and 4.1%, respectively. The annual level was the lowest in two years.
The inflation report comes as investors assess the next potential policy move from the Fed amid optimism that the US central bank is making headway in its fight against inflation.
According to CME FedWatch Tool, the odds are at 95.6% that the Fed will keep interest rates at current levels through its January meeting.
“We’ve seen quite a response to the US inflation report, with investors clearly buoyed by the miss on both the headline and core numbers,” said Oanda senior market analyst Craig Erlam.
“The dollar fell across the board on the [CPI] headlines as there is a consistent theme of softness in the numbers, particularly from the latest jobs market reports,” said Erlam.
At 5.48pm, the rand had strengthened 1.79% to R18.3668/$, having gained more than 1.9% — the biggest one-day gain since April 13. It had strengthened 0.62% to R19.8758/€ and 0.25% to R22.8768/£. The euro was 1.24% firmer at $1.0831.
“While in both cases [headline and core CPI] we’re talking about modest misses, it does feel nonetheless significant. Looking closely at the numbers, it may sound marginal, but paired with a miss on a [headline] annual basis and flat on a monthly, this looks like a really promising report,” said Erlam.
“Of course, there’s another report to come a day before the December meeting, but today potentially lays the groundwork for the Fed to adopt a much less hawkish position — especially compared with September — and markets are now seemingly convinced the tightening cycle is over.”
The JSE all share rose 2.53% to 72,443 points, with major indices rallying more than 1%, while the top 40 added 2.53%.
At 6pm, the Dow Jones industrial average rallied 1.55% to 34,868 points and markets in Europe were firmer.
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