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Afternoon NOTE

Good Afternoon

The ZAR recovered on the back of profit-taking ahead of tonight’s FOMC minutes.

SOUTH AFRICA

BRICS BANKS

• Brics bank’ issues first South African rand bonds
  • NDB’s three year rand bond was priced at a floating rate of 95 basis points (bps) above the three month JIBAR while the five year was priced at Jibar +105 bps.
  • The development bank founded by the so-called Brics countries closed the auction for its first South African rand bonds on Tuesday.
  • SA’s  finance minister said that the NDB, which was founded to give the Brics members more control of development financing.
  • It was deemed to not be doing enough local currency lending, in an interview with Reuters ahead of the Brics summit in Johannesburg next week.
  • CFO Leslie Maasdorp told Reuters in a recent interview that the bank aims to increase local currency lending, most of which has so far been in Chinese Yuan, from about 22% to 30% by 2026,
    • but that there were limits to de-dollarisation. Source Reuters

OPPOSITION PARTIES

• A political party pact convention is taking place in Kempton Park and it involves the DA, IFP, Freedom Front Plus, ActionSA and three other political parties. 
• The parties hope the meeting will be the first step in forming a coalition government in the 2024 elections. 
• IFP leader Velenkosini Hlabisa said the meeting was not an anti-ANC club.
• Leaders of seven political parties that have gathered at a two-day national convention in Kempton Park say they have not done so because they hate the ANC. 
• Their common goal, they say, is to unseat the ANC and provide an alternative government. 
• DA leader John Steenhuisen, IFP leader Velenkosini Hlabisa, ActionSA leader Herman Mashaba, and Freedom Front Plus leader Pieter Groenewald,
• began their first talks towards a coalition pact that could try to form a government after the 2024 elections. Source News 24

GLOBAL MARKETS

Stocks

Stocks cautious and range trading ahead of the FOMC minutes.

• US stock futures were trading around the flatline with some positive bias on Wednesday.
• Investors remain cautious ahead of the FOMC July minutes release later in the day.
• In pre-market trading, shares of Target surged on a robust profit rebound in Q2 even though the retailer cut its full-year outlook.
• Tesla was down after the carmaker cut China prices for the second time this week.
• On Tuesday, all three of the major indexes lost over 1%, as strong US retail sales figures and reports that Fitch could downgrade large US banks weighed on equities. Source CNBC

Bonds

Yields lower ahead of minutes.  

• The yield on the US 10-year Treasury moved lower to 4.18% ahead of key FOMC minutes.  
• Traders trying to get an insight into Fed guidance especially after recent data release beat market expectations indicating a robust economy .
• Traders are also keeping a close eye on new debt sales from the Treasury.

OVERNIGHT HEADLINES

 Market Closes:

• DOW -361 to 34,946
• SP500 -51 at 4,437
• NASDAQ +20 at 15,055

  image: Trading economics

Asian markets

• Asian equities lower.  
• In Japan equities lower, the Nikkei 225 Index fell 1.46% to close at 31,767, reversing gains from the previous session and tracking losses on Wall Street overnight.
  • Strong US retail sales data and the prospect of credit rating downgrades on large US banks hurt market sentiment.
  • Financial, technology and consumer-related stocks led the decline.
     
• In China, the Shanghai Composite fell 0.82% to close at 3,150, sliding for the fourth straight session as market sentiment took a hit.
  • Traders citing strong US retail sales data and the prospect of credit rating downgrades on large US banks.
  • Investors also remained cautious as weak Chinese economic data and the lack of meaningful stimulus from Beijing weighed on the country’s economic outlook,
  • This even after the People’s Bank of China unexpectedly slashed a key lending rate.

Energy

Oil prices higher.  

• Brent crude futures were slightly higher at above $85 per barrel on Wednesday.
  • Prices recovering from two consecutive sessions of losses after an industry report pointed to a larger-than-expected drop in US crude inventories.
  • API data showed that US crude stockpiles declined by 6.2 million barrels last week, compared to market expectations for a 2.3-million-barrel decrease.
  • Now, investors await government figures later in the day. Oil prices have been on the rise for the past seven weeks due to supply cuts by major oil-producing countries like Saudi Arabia and Russia.

• However, the momentum of these price increases is being affected by worries about China’s struggling economic recovery, which could potentially lead to decreased demand for oil. Source Gulf news

Metals

Precious metals higher on short covering.

• Gold traded higher to $1,910/oz on Wednesday, hovering near seven-week lows as stronger-than-expected US retail sales data supported the case for the Federal Reserve to keep interest rates higher for longer.
• Fed governors stating that  the US central bank has made some progress in its inflation fight, but interest rates may still need to go higher to finish the job.
• Investors now await minutes of the Fed’s last policy meeting for more clues on the rates path.
• Elsewhere, the Reserve Bank of New Zealand held its policy rate steady at its August meeting but warned that rates need to remain restrictive to bring down stubbornly high inflation. Source : Kitco

Currencies

• Dollar higher as strong US data continues.
• The dollar index held above 103 on Wednesday, hovering near its highest levels in six weeks as stronger-than-expected US retail sales data supported the case for the Federal Reserve to keep interest rates higher for longer.
• Investors now await minutes of the Fed’s last policy meeting for more clues on the rates path.
• The dollar held recent gains against most major currencies, but weakened against the kiwi as the RBNZ held its policy rate steady.
• The bank warning  that rates need to remain restrictive to bring down stubbornly high inflation. Source : Forexlive