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Morning NOTE

GOOD MORNING

The ZAR continued to strengthen but found some resistance selling around the R19.2000/$ level after the Dollar rebounded.

OPENING RATES

• USDZAR : 19.2600
• EURZAR : 20.5700
• GBPZAR : 23.9100

SOUTH AFRICA

ESKOM

• Eskom managed to slow down load shedding
  • Its energy availability factor is above 60% for the first time since August…
  • The incredible shift from Stage 6 load shedding to Stage 3, potentially even lower, was arguably always predictable.
  • Just weeks ago, the country was on edge, anticipating Stage 8 – or worse – load shedding during the winter months.
  • This will likely not come to pass as Eskom’s coal generation fleet performs far better in winter than in summer.
     
• South African Reserve Bank (Sarb) Governor Lesetja Kganyago told Parliament on Tuesday that the geo-political situation as well as prolonged greylisting, could all pose a risk to the country’s financial stability.
  • The reserve bank is warning that government’s stance on the war in Ukraine could lead to secondary sanctions for South Africa.
    • Governor Lesetja Kganyago told Parliament on Tuesday that the geo-political situation as well as prolonged greylisting, could all pose a risk to the country’s financial stability.
  • It’s the first time the Standing Committee on Finance is briefed by the central bank on its financial sustainability review, which is published twice a year.

GLOBAL MARKETS

Stocks

• US stock futures were little changed on Wednesday after the major averages finished higher during Tuesday’s regular session, with the S&P 500 and Nasdaq Composite closing at their highest levels in at least nine months.
   
• In extended trading, the Dave & Buster’s and Stitch Fix jumped% and %, respectively, on upbeat quarterly results.
  • In regular trading on Tuesday, the S&P 500 and Nasdaq Composite gained 0.24% and 0.36%, respectively, while the Dow inched up 0.03%.
• Seven out of the 11 S&P sectors finished higher, led to the upside by financials and consumer discretionary.

Bonds

• The yield on the US 10-year Treasury note reversed early gains to trade around 3.7%, as recent data raised some concerns about the resilience of the economy.
  • ISM Services PMI showed a bigger-than-expected slowdown in services activity last month while factory orders rose much less than market forecasts.
  • Last week, the payrolls report painted a mixed scenario, with the economy adding a remarkable 339K jobs in May.
  • Around 80% of market participants expect the Fed to leave rates steady when it meets next week, but traders now seem to be divided regarding the July move.
  • Only around half expecting a 25bps rate increase, compared to 56% prior to the ISM Services release.
  • Meanwhile, President Biden signed the new debt bill into law on Saturday, avoiding a US default and the Treasury Department is now set to resume new debt issuance.

Yesterday

• DOW  +10 to 33,573
• SP500 +10  to 4,283
• NASDAQ  + 46 13,276

  image: Trading economics

OVERNIGHT HEADLINES

The US dollar

• The US dollar index steadied above the 104 mark on Wednesday as investors.
  • Traders  continued to assess the health of the US economy and the outlook for Federal Reserve monetary policy ahead of next week’s meeting.
  • Mixed economic data have done little to guide markets, with the latest payrolls report showing a remarkable 339,000 jobs added in May, while the ISM Services PMI fell to a five-month low last month.
  • Around 75% of traders anticipate that the Fed will pause its tightening cycle next week, but markets see a nearly 52% chance of another 25 basis point rate hike in July.
  • Earlier the Reserve Bank of Australia raised borrowing costs by 25 basis points and offered a hawkish outlook on rates.

Asian markets

• In Japan, the Nikkei 225 Index dropped 1.8% to close at 31,914 as investors took some profits off the table following a strong rally that brought the benchmark indexes to over three-decade highs.
  • Japan’s export-oriented industries have benefited from a weak yen that boosted corporate profits and made Japanese assets more attractive to foreign investors.
  • Investors also continued to assess the economic and monetary policy outlook globally, with the prospect of further interest rate hikes from the US Federal Reserve looming over the markets.
  • Technology once stocks led the decline.

Crude oil

• US WTI crude futures steadied just below $72 per barrel on Wednesday after coming under pressure in the previous session, as traders weighed the prospect of tighter supplies against concerns about weakening global demand.
  • Saudi Arabia, the world’s largest oil exporter, announced over the weekend its intention to reduce output by 1 million barrels per day to 9 million bpd in July,
  • the lowest level in years amid an effort to bolster crude prices. Industry data also showed that US crude inventories declined by about 1.7 million barrels last week, defying expectations for a 1.5 million barrel increase.
  • Meanwhile, recent concerns about China’s slowing economy and potential recessions in the US and Europe have put pressure on oil markets.
  • Investors also fretted about the prospect of further interest rate hikes from major central banks that could negatively impact overall demand

Gold

• Gold was subdued around $1,960/oz on Wednesday as investors geared up for the US Federal Reserve’s interest rate decision next week.
  • The Fed is widely expected to pause its tightening cycle at the upcoming meeting in light of softening US economic data, but markets see a nearly 52% chance of another 25 basis point rate hike in July.
  • Investors also look ahead to US inflation data due for release next week to guide the economic and interest rate outlook.
  • Still, the metal remains down more than 5% from its May peak as major central banks are anticipated to keep interest rates higher for an extended period due to persistent inflationary pressures.
  • Meanwhile, data showed that Chinese exports dropped more than expected in May, reflecting the country’s challenging recovery path as external demand slows.