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Midday NOTE

14 August 2023

Good Afternoon

The ZAR breaching R19/$ after a dollar rebound.

Data this week

 Tuesday

  • 03h30 : RBA  minutes
  • 08h00 : UK unemployment  expected 4% unchanged.
  • 11h00 : German Economic sentiment ZEW-14.4 expected vs -14.7
  • 11h30 : SA Unemployment RATE 32.8% VS  32.9% PREVIOUS
  • 14H30 : US  RETAIL SALES  0.4% MOM VS 0.2% PREVIOUS
  • 17H00 : FED KASHKARI Speaks.

Wednesday

  • 08h00 : UK  CPI inflation 6.8% vs 7.9% previous
  • 13H00 : SA RETAIL SLAES -0.5% VS -1.4%
  • 14H30 : US HOUSING STARTS 1.443MILLION
  • 20H00 : US FOMC MINUTES

Thursday

  • 14h30 : US initial jobless claims 240k EXPECTED Vs  248k

Friday

  • 08H00 : UK RETAIL SALES   MOM  -% VS 0.7% EXPECTED

Market Highlights:

The Rand faltered and once again breached the R19/$ in early trading.

  • The local unit sharply losing ground after a higher than expected US PPI report.  
    • The result a sharp rebound in US yields with a 10YT at 4.17%
    • The benchmark yields losing nearly 20 bps in Friday trading.
    • In addition, the continuation of the US treasury’s issuance programme placing more pressure on yields with investors demanding a higher pay-out.
       
  • All of the above resulting in negative risk session, with benchmark stock markets lower on the back of a rampant Dollar.
    • The Dollar reaching ¥145vs the YEN, prompting speculation of a BOJ intervention.
    • The landscape however dominated by the spike in US yields and this likely to drive the Dollar higher.  
    • Also, Fed President Mary Daly said the latest CPI numbers do not mean that the central bank can declare a win over inflation,
      • adding that the labour market is not yet balanced.
    • Traders pairing bets of cuts in 2023 adding fuel to the Dollar rally.
       
  • The ZAR likely to under perform in this environment.
     
  • Trade : BUY USDZAR

SOUTH AFRICA

SA GDP

  • Economists see SA avoiding second-quarter contraction
  • Better-than-expected mining and manufacturing output contributed to their revised projections.
  • SA economy probably avoided a contraction in the second quarter, despite record power cuts, logistical constraints and sagging consumer confidence.
  • Analysts polled by Bloomberg August 4-10, the economy stagnated quarter-on-quarter, compared with a forecast for a 0.1% contraction last month.
  • Better-than-expected mining and manufacturing output contributed to their revised projections.
    • The sectors that make up more than a fifth of total gross domestic product grew 1.5% and 2.3% respectively in the three months through June. Source Moneyweb

SA INTERNET DISRUPTION

  • Two undersea communication cables that are critical for network operators in South Africa snapped on the same day, which has resulted in disruptions to the internet.
  • Some websites might load slowly, and others not at all.
  • The West Africa Cable System (WACS) and the South Atlantic Telecommunications Cable number three (SAT-3) both broke on 6 August.
  • Technicians citing that in the Congo Canyon, a repeated rockfall responsible.
  • Openserve confirmed that the break in the cables occurred, and said that a consortium of partners is working to restore these cables. Source News24

GLOBAL MARKETS

Stocks

Equities flat ahead of Fed minutes on Wednesday.

  • US stock futures reversed early losses to trade in the green on Monday,
    • with contracts on the Dow Jones adding about 70 points while the S&P 500 gained 0.3% and the Nasdaq 100 was up nearly 0.5%.
       
  • Stocks attempt to rebound from losses last week, with shares of Apple, Microsoft.
    • Meanwhile, traders continue to follow developments in China after turmoil and default risks at developer Country Garden and wealth manager Zhongzhi Enterprise Group.
    • Investors will also keep a close eye on retailers’ earnings this week, including Home Depot and Walmart.
    • The FOMC minutes on Wednesday, as well as July retail sales data will also be in the spotlight.

Bonds

Yields higher after US PPI and Treasury auctions.

  • The yield on the US 10-year Treasury note rose above the 4.13% mark, approaching the nine-month high of 4.19% touched on August 3rd.
  • New economic data pushed back against previous hopes of disinflation in the US economy,
    • The data supporting the case for restrictive monetary policy and trimming demand for Treasuries in the secondary market.
    • Both headline and core producer prices were above market expectations in July, slightly backtracking the cooler CPI reading released on the prior day.
    • Additionally, higher bond issuance from the US government also contributed to higher yields,
      • with auctions for 10-year notes and 30-year bonds both seeing higher yields than previous results. Source CNBC

OVERNIGHT HEADLINES

Market Closes:

  • DOW +105 to 35,281
  • SP500 -4.78 to 4,464 4,468
  • NASDAQ flat at 13,644

  image: Trading economics

Asian markets

  • Asian equities lower.
     
  • In Japan equities lower. The Nikkei 225 Index dropped 1.27% to close at 32,060, erasing gains from the previous session as property woes in China.
    • A strong US producer inflation report hurt sentiment globally.
    • Investors also braced for Japan’s second quarter gross domestic product report on Tuesday, as well as its key inflation print on Friday.
    • Meanwhile, traders monitored the yen closely after it hit the psychologically important ¥145 per dollar level that prompted Japanese authorities to intervene in the currency markets last year.
       
  • In Australia, the ASX 200 index fell 0.89% to 7,277 on Monday, closing at its lowest level in a month and taking cues from a negative lead on Wall Street.
    • Traders citing persistent inflationary pressures in the US raised concerns that the Federal Reserve will keep interest rates higher for longer.
    • Property sector woes in China and geopolitical risks in Europe also dampened investor sentiment. Source :  Reuters

Energy

Oil prices remain bid on more supply cut news.

  • Brent crude futures eased toward $86/bl on Monday after rallying for seven straight weeks on tightening global supply.
  • China-related uncertainties and a stronger dollar weighed.
  • Investors continued to fret about a sluggish economic recovery in top crude importer China, while awaiting industrial production, retail sales and employment data on Tuesday.
  • A stronger-than-expected US PPI report also fuelled bets that the FED will keep interest rates higher for longer, pushing the dollar up while pressuring dollar-denominated commodities.
  • Meanwhile, brent prices surged nearly 20% over the past seven weeks as OPEC+ majors Saudi Arabia and Russia curtailed supply. Source Gulf news

Metals

Precious metals lower after spike in US yields.

  • Gold held below $1,920/oz on Monday, trading at five-week lows and facing pressure from a strong dollar and Treasury yields.
  • Hotter-than-expected US producer inflation report for July fuelled bets that the Federal Reserve will keep interest rates higher for longer.
  • Investors also brace for US retail sales figures and minutes of the Fed’s last policy meeting this week that could guide the economic and interest rate outlook.
  • Elsewhere, Japan will release second quarter GDP figures on Tuesday, while China will report industrial production, retail sales and employment numbers on Wednesday.  Source: Kitco

Currencies

Dollar higher as strong US PPI data.

  • The dollar index rose toward 103 on Monday, scaling its highest levels in five weeks.
  • A stronger-than-expected US producer inflation report for July fuelled bets that the Federal Reserve will keep interest rates higher for longer.
  • San Francisco Fed President Mary Daly said the latest CPI numbers do not mean that the central bank can declare a win over inflation, adding that the labour market is not yet balanced.
  • Investors now look ahead to earnings reports from Walmart, Home Depot and Target, as well as July retail sales data for insights on the state of American consumers.
  • The dollar strengthened across the board and climbed to multi-month highs against the yen, Aussie and Kiwi Dollar.
  • Source : Fx news

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