Afternoon Note
04 October 2023
Support & Resistance Levels
Data This Week
Market Highlights
Market Close
South Africa
Global Markets
Overnight Headlines
ZAR off its weakest level in afternoon trading.
Today’s Market & Resistance Levels
Data This Week
Monday
Tuesday
14h00 ATLANTA FED Raphael Bostic speaks
16h00 US JOLTS JOB OPENINGS 8.8M EXPECTED
Wednesday
09H15 SA GLOBAL PMI 50.3 EXPECTED
10H00 ECB’S LAGARDE SPEAKS
11H00 EU RETAIL SALES -0.3% MOM
11H00 EU PPI 0.6% MOM EXPECTED
14H15 US ADP EMPLOYMENT DATA +153K EXPECTED
16H00 US ISM SERVICES PMI 53.6 EXPECTED
Thursday
14H30 US WEEKLY JOBLESS CLAIMS +210K EXPECTED
Friday
14H30 US NON FARM PAYROLLS +163K EXPECTED
14H30 US UNEMPPLOYMENT 3.7% EXPECTED
Market Highlights
The ZAR reached 19.4000 before recovering to 19.1800 in midday JHB trading.
The local unit’s weakness attributable to the rise in global yields driving the Dollar higher.
We remain above key support levels. Consolidation above the 19.2000 likely to attract more Dollar buyers before higher.
Long Dollar traders, however cautiously long the buck , especially after a failed attempt by the BOJ to drive the Dollar lower.
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- The Japanese yen stabilized near 149 per dollar on Wednesday after an unexpected surge in the previous session.
- It raised fears that authorities could have intervened in the currency markets to support the yen.
- The currency jumped as much as 1.7% to 147.3 late on Tuesday before giving back most of the gains as stronger-than-expected US jobs data.
- The data supporting the view that the Federal Reserve will keep interest rates at restrictive levels for an extended period.
Globally, bond yields remain higher as the bond sell-off accelerates.
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- The yield on the 10-year note touched 4.86% and the one on the 30-year bond approached 5%, both at 2007 highs.
- In Germany, the 10-year Bund yield topped 3%, the highest since June 2011.
The Dollar on the front foot as long as yields remain elevated and we expect more ZAR weakness.
Trade:
BUY USDZAR on dips (we are above 19.3000) target 19.5000
Market Close
DOW
-430 to 33,002
SP500
-58 at 4,229
NASDAQ
-249 to 14,600
Overnight Trading
Image: Trading Economics
South Africa
SA MINING
Mining accounts for nearly 60% of SA exports – PwC.
But at current mining rates the country has just 27 years of gold reserves left.
Once a world leader, SA now ranked number eight behind Kazakhstan and Mexico, has roughly 27 years of gold reserves left.
Equally sobering is the fact that minerals accounted for R575 billion, or 58% of total exports, in the first six months of 2023.
The outsized contribution of mining to foreign currency earnings and the balance of payments.
It was achieved despite power outages and a dreadful performance from state-owned ports and rail operator Transnet.
It’s been estimated that Transnet’s inability to freight goods to port costs the country R1 billion a day, equivalent to 5% of GDP (on top of an estimated 10% loss to GDP in 2022).
Other challenges facing miners include above-inflation cost pressures, volatile commodity prices and currency exchange rates, illegal mining and a critical skills shortage.
Until that’s fixed, little in the way of exploration is likely to happen.
The price of petrol is going up again.
From Wednesday, consumers will pay between R1.08 and R1.14 more for petrol at the pumps.
The Department of Mineral Resources and Energy said that diesel would increase by between R1.93 and R1.96 a liter.
Wholesale paraffin will increase by R1.51 a liter and retail, R2.02.
The maximum price of LP gas will increase by R2.50 per kilogram.
Department spokesperson, Robert Maake: “The reasons for these increases are as follows: the higher oil prices during the period under review, which led to higher prices or petroleum products; there is a shortage of diesel in the market globally.
Analysts saying the rand’s weakness against the US dollar and contributed around 22 to 26 cents per liter.”
Source: EWN
SA CHICKEN CRISES
Government contemplates rebate on chicken import duties.
Local bird flu outbreaks raise concerns about food security.
The government intends to introduce a temporary rebate on import duties of chicken meat to combat a potential shortfall in the face of a number of highly pathogenic avian influenza (HPAI) outbreaks.
According to the Department of Agriculture, the total loss due to the outbreaks amounted to around 1.4 million chickens by 21 September.
A total of 50 HPAI H7 outbreaks and 10 HPAI H5 outbreaks were reported.
Minister of Trade, Industry and Competition Ebrahim Patel has now directed trade commission Itac to consider the creation of a rebate on meat and edible offal of fresh, chilled or frozen chicken.
In a statement issued on Tuesday, Patel says the outbreaks led to the culling of around 2.7 million chickens.
Source: Moneyweb
Global Markets
Stocks
US stock futures extended losses on Wednesday after a sharp selloff in the last session.
In regular trading on Tuesday, the Dow fell 1.29% and turned negative for the year.
The S&P 500 and Nasdaq Composite also dropped 1.37% and 1.87%, respectively.
The losses came after the JOLTS job opening report came in stronger-than-expected, supporting views that the Federal Reserve will keep interest rates elevated for an extended period.
Rallying Treasury yields also continued to pressure equities, with the benchmark 10-year US yield marching toward a 16-year high of 4.8%.
Source: Trading Economics
Bonds
The yield on the US 10-year rose above 4.86% on Wednesday.
It reached a new high not seen since July 2007 and the 30-year one is approaching 5%, a level not seen in sixteen years.
A hawkish Fed has raised bets that interest rates are likely to remain higher for longer.
Earlier strong economic data including the JOLTS report and the ISM Manufacturing PMI released this week point to a resilient economy.
In Europe, the benchmark 10-year Bund yield topped 3%, a level not seen since June 2011.
In Japan, the 10-year yield rose to 0.85% for the first time since August 2013 and in Australia, the 10-year yield topped 4.7%.
Source: Bloomberg
Overnight Headlines
Asian Markets
Stocks sharply lower in Asian trading.
In Japan the Nikkei 225 Index plunged 2.28% to 30,527, closing at their lowest levels in about four months and tracking losses on Wall Street overnight.
Earlier US job openings data showed the US labour market remained strong and Treasury yields marched higher.
The benchmark 10-Year US yield rose above 4.8% for the first time since 2007.
Investors also monitored the Japanese yen closely after an unexpected surge on Tuesday raised speculation that Japanese authorities intervened in the currency markets.
Technology stocks led the decline.
Also, talk about BOJ YEN intervention. The currency jumped as much as 1.7% to 147.3 late on Tuesday before giving back most of the gains as stronger-than-expected US jobs.
Source: Reuters
Energy
Oil prices finding support.
Brent crude futures steadied near $91/bl on Wednesday as traders continued to assess the market outlook ahead of an OPEC+ meeting, where it is expected to keep output policy unchanged.
Oil prices remained supported by tightening global crude supply after Saudi Arabia and Russia extended supply cuts to the end of the year.
Russia also set no time frame for a fuel export ban which was implemented last month to stabilize prices and address shortages in its domestic market.
In the US, industry data showed that crude inventories fell by about 4.2 million barrels last week, far exceeding forecasts for a 92,000 barrel draw.
Meanwhile, the international oil benchmark is still down nearly 2% so far this week as strong US economic data boosted the dollar and Treasury yields and spurred a selloff in risk assets.
Source: GULF news
Metals
Precious metals continuing to slide.
Gold held below $1,830/oz on Wednesday, hovering at its weakest levels in seven months due to constant pressure from a strong dollar and surging Treasury yields.
Bullion falling as the dollar reached ten-month highs against a basket of peers and the 10-year US yield rallied to its highest levels since 2007.
Strong US economic data bolstered the view that the Federal Reserve will keep interest rates higher for longer.
The JOLTS report showed a bigger-than-expected number of job openings while the ISM Manufacturing PMI indicated the smallest contraction in factory activity in nearly a year for September.
Additionally, news that US lawmakers arrived at a temporary agreement over the weekend that would keep the government funded for 45 more days pressured the metal further.
Investors now look ahead to comments from various Fed officials this week for additional insights into the central bank’s policy plans, as well as the key US monthly jobs report on Friday.
Source: KITCO
Currencies
Dollar scaling new high’s.
The dollar index extended gains to 107.2, its strongest level since November and tracking Treasury yields higher.
The Buck supported as hawkish comments from Fed officials continue to strengthen the expectation that interest rates will remain elevated for an extended period.
Meanwhile, economic data continues to signal a resilient economy.
The upcoming payrolls report and further comments from Fed officials will be closely watched in the coming days.
The dollar strengthened against all major currencies, with the most pronounced buying activity against the Aussie, after the Reserve Bank of Australia held interest rates steady.
The greenback also appreciated against the Japanese yen, the British pound and the Euro.
YEN INTERVENTION.
The Japanese yen stabilized near 149/$ on Wednesday after an unexpected surge in the previous session raised fears that authorities could have intervened in the currency markets to support the yen.
The currency jumped as much as 1.7% to 147.3 late on Tuesday before giving back most of the gains as stronger-than-expected US jobs.
The data bolstered the view that the Federal Reserve will keep interest rates at restrictive levels for an extended period.
Finance Minister Shunichi Suzuki recently warned that he was watching currency moves “cautiously”.
The currency weakened sharply this year as the Bank of Japan remained committed to its ultra-easy monetary policy.
Source: Forexlive