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Morning NOTE

GOOD MORNING

The ZAR gained on the back of a weaker Dollar before finding resistance after another spike in US Non-farm payrolls.

OPENING RATES

• USDZAR : 19.5200
• EURZAR : 20.8700
• GBPZAR : 24.2500

SOUTH AFRICA

Eskom

• Stage two load shedding will be implemented from 4pm on Sunday afternoon until Monday morning, before Eskom suspends load shedding again.
• The utility said five generating units returned to service, which allows for lower stages of rolling power cuts.
• Load shedding will be suspended from 5am until 4pm in the afternoon.

Chickens

• The latest outbreak of the highly pathogenic avian influenza (HPAI) in the Western Cape, has resulted in at least 550 000 chickens being slaughtered and many more eggs being destroyed in attempts to contain the disease.
• This is according to general manager of the South African Poultry Association (Sapa), Izaak Breitenbach, who spoke to Moneyweb on Thursday.
• This is the second bird flu outbreak to hit the region this year. The first one took place in April, concerning the JSE-listed producer of Nulaid Eggs, Quantum Foods, which had to slaughter at least 420 000 birds to curb the disease’s spread.

GLOBAL MARKETS

Stocks

• US stock futures were little changed on Monday after the major averages came off a winning week, driven by a broad-based rally during Friday’s session.
  • Futures contracts tied to the three major indexes were all trading near breakeven.
     
  • In regular trading on Friday, the Dow rallied 2.12%, the S&P 500 jumped 1.45% and the Nasdaq Composite gained 1.07%. All 11 S&P sectors finished higher, led to the upside by materials, industrials and energy.
    • Those moves came as US lawmakers passed the Fiscal Responsibility Act last week,
    • which President Joe Biden then signed into law over the weekend, averting a potentially catastrophic default by the US government.
  • Growing expectations that the Federal Reserve will pause its interest rate hikes this month also boosted the market, as the central bank aims to seek more clarity on the state of the economy.
  • Investors now look ahead to more economic data this week including May PMI data and April factory and durable goods orders.
     
• Markets will now turn their attention to the next Fed meeting on June 13-14 , 2023.

Bonds

• The yield on the 10-year US Treasury note rose to the 3.73% mark on Friday, after domestic labour data added confusion to the expected path of US monetary policy.
  • Recent speeches by Fed officials indicated that the central bank might skip a rate hike in the next meeting, but the latest jobs report increased the likelihood of a 25bps rate hike this month.
  • The US economy added 339 thousand jobs in May, well above market estimates of 190 thousand and upwardly revised 294 thousand in April.
  • On the other hand, the unemployment rate rose by 0.3 percentage points to 3.7% and hourly wage growth slowed.
  • Meanwhile, the US Congress approved the deal to suspend the government’s debt ceiling until 2025, erasing concerns of a default.
     
• IMF chief says there’s no significant slowdown in lending and the Fed may need to do more.
  • The IMF’s Managing Director Kristalina Georgieva told CNBC: “We don’t yet see a significant slowdown in lending.”
  • Stressing that the world economy is in an “exceptionally uncertain environment, Georgieva said: “Pay attention to trends and be agile, adjusting — should the trends change.”
  • A majority of major global central banks, including the U.S. Federal Reserve, have tightened their monetary policy aggressively to tame soaring inflation.

On Friday

• DOW +701   to 33,762
• NASDAQ +139 to 13,240
• SP500 + 61 to 4,282

  image: Trading economics

OVERNIGHT HEADLINES

The US dollar

• The dollar index held above 104 on Monday after gaining half a percent in the previous session.
  • The Dollar supported by surprisingly strong jobs data that raised bets the Federal Reserve will keep interest rates higher for longer.
    • The US economy unexpectedly added 339,000 jobs in May, surpassing the forecasts for a 190,000 increase.
    • However, the unemployment rate rose to a seven-month high of 3.7%, higher than the expected 3.5% and wage growth slowed as expected.
    • Markets now see a 25% chance that the Fed would deliver another 25 basis point rate hike this month, with a potential pause in the tightening cycle still on the table.
  • Meanwhile, President Joe Biden signed the debt ceiling bill into law over the weekend, averting a potentially catastrophic default by the US government. FX news

Asian markets

• In Japan, the Nikkei 225 rallied 2.1% to close at 32,217, with both benchmarks hitting fresh 33-year highs as US President Joe Biden signed the debt ceiling bill into law.
  • The debt ceiling agreement averting a potentially catastrophic default by the US government and lifting market sentiment.
  • Japanese stocks have outperformed global peers since May on strong domestic earnings and a weak yen,
    • while market enthusiasm over artificial intelligence and related technologies provided additional boost.
    • Technology stocks led the charge, with strong gains. Reuters
       
• In China, the Shanghai Composite rose 0.2% to 3,235, as investors reacted to data showing services sector growth in China accelerated in May as the country’s post-pandemic recovery continued.
  • Still, investors remained cautious amid a highly uncertain outlook for the world’s second-largest economy, with markets divided on whether Chinese authorities would introduce further policy support. CNBC

Crude oil

• WTI crude futures jumped as much as 4.6% to $75 /bl  after Saudi Arabia pledged to reduce output by another 1 million barrels per day from July.
  • That would bring the country’s production level to around 9 million barrels per day next month, the lowest in years.
    • Energy Minister Prince Abdulaziz bin Salman said he “will do whatever is necessary to bring stability to this market” at a high stakes OPEC+ meeting over the weekend.
  • Meanwhile, Russia made no commitment to reduce output further and the United Arab Emirates was allowed to raise output targets for next year.
    • Still, lingering demand concerns, especially from top crude importer China, continued to weigh on sentiment.
    • The prospect of further interest rate hikes from the US Federal Reserve also clouded the outlook for commodity markets. Gulf Energy News

Gold

• Gold held below $1,950 an ounce on Monday after losing 1.5% in the previous session.
  • Prices weighed down by a firmer dollar as a strong US payrolls report raised bets the Federal Reserve will keep interest rates higher for longer.
  • Non Farms surprised the markets higher, with more than 300,000 new jobs created.
  • The data indicating a stronger labour market that will likely support the FED if the FOMC hikes by another 25 bps.
• Elsewhere, US President Joe Biden signed the debt ceiling bill into law over the weekend, averting a potentially catastrophic default by the US government. Kitco metals