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Morning NOTE

GOOD MORNING

The ZAR continued its astonishing turn around with the local unit trading below R19.00/$ (briefly) before rebounding.

OPENING RATES

• USDZAR : 19.0800
• EURZAR : 20.4000
• GBPZAR : 23.7200

SOUTH AFRICA

National Treasury V Eskom

• Finance Minister, Godongwana rejects Eskom’s financial reporting exemption application
  • Saying the state-owned power utility needs to do more operationally to reduce the scope of fraud and corruption before such an exemption can be considered.
  • Godongwana has rejected Eskom’s application for a partial exemption from the Public Finance Management Act (PFMA) and National Treasury regulations.
    • If it was approved, it would have allowed it not to disclose irregular, fruitless and wasteful expenditure and material losses from criminal conduct in its annual financial statements.
  • Godongwana said on Wednesday he recognises the commitment of the Eskom board and management to fight and expose fraud and corruption,
    • and the additional compliance and reporting burden facing Eskom and other state-owned enterprises (SOEs). EWN

Zuma

•  Media rights groups have hailed Wednesday’s ruling on former president Jacob Zuma’s private prosecution of journalist Karyn Maughan as “an overwhelming win for media freedom”.
  • The Pietermaritzburg High Court on Wednesday upheld an application from Maughan to review and set aside the summons Zuma served .
  • The former president issued a summons on her last September in which he accused her of breaching the National Prosecuting Authority (NPA) Act.
  • This in connection with what he’s maintained was the leaking of confidential medical information by the NPA to Maughan. News24

Rampahosa approaches SA business

• The SA government and organised business groups have agreed to work together to find an urgent solution to overcome hurdles preventing economic growth and job creation.
• President Cyril Ramaphosa chaired a meeting with the country’s business fraternity to discuss remedial measures needed to solve issues in various sectors.
• During the meeting, issues pertaining to energy, transport, crime and corruption were identified as key areas in need of urgent intervention.
• In the past month, the rand hit a new low to the US Dollar, while the ever-increasing repo rate continued to put financial pressure on ordinary South Africans. Money web

GLOBAL MARKETS

Stocks
On Wednesday, the Dow rose 0.27%, while the S&P 500 and Nasdaq Composite tumbled 0.38% and 1.29%, respectively.

• 6 S&P sectors advanced including energy, real estate, utilities, industrials, materials and financials,
  • while the communication services, technology and consumer discretionary sectors were the worst performers.
  • With a lack of market-moving catalysts, investors are looking ahead to the Federal Reserve’s policy meeting next week as well as US inflation data.
• US stock futures were little changed on Thursday after the major averages ended mixed during Wednesday’s regular session, as investors rotated out of technology and other growth stocks into other sectors.
  • Futures contracts tied to the three major indexes drifted flat to slightly negative
• In extended trading, GameStop sank nearly 20% after the video game retailer fired its CEO Matthew Furlong and appointed Ryan Cohen as executive chairman. CNBC

Bonds

• The yield on the US 10-year Treasury note rose past the 3.75% level.
  • The benchmark yield reaching the “ over-two-month-high” of 3.8% touched on May 26th.
     
  • Investors once again concerned that that inflation is stickier than expected strengthened expectations that the FED will deliver another rate hike.
  • Both the RBA(Australia)  and the BoC (Canada) delivered surprise rate hikes this week. 
  • The G7 central banks  citing risks that borrowing costs are not sufficiently tight to bring inflation rates back to target levels, which mirror similar concerns about the US.
     
• Markets once again flip flopping and now  price a 70% likelihood that the US central bank will deliver at least one 25bps rate hike by its July meeting.
  • Investors now await the key inflation print due next week,
    •  a hot reading set to solidify another Fed hike after the latest payrolls report showed that the US added a remarkable 339K jobs in May.

Yesterday

• DOW added 91 to 33,665
• SP500 declined 16 to 4,267
• NASDAQ fell 172 to 13,104

  image: Trading economics

OVERNIGHT HEADLINES

The US dollar

• The US dollar finding support and once again above 104 on Wednesday.
  • The surprise hikes by both the RBA and BoC, adding to hawkish nervousness ahea of inflation data and the Fed decision next week.
    • Markets are once again pricing for a rate hike in June.
• The rally in the Dollar not as fast as investors unwind long bets on the dollar, which were taken as a hedge before the U.S. government raised the debt ceiling.
  • The market is monitoring the U.S. Treasury’s increased issuance of Treasury bills to rebuild its cash balance, as any potential demand problems could impact the market.
    • The latest data showed the U.S. trade deficit widened in April, driven by increased imports and decreased exports.
  • Elsewhere, recent rate hikes by the Bank of Canada and the Reserve Bank of Australia increased nerves with the Fed expected to hike next week. Fx News

Asian markets

• In Japan, the Nikkei 225 Index rose 0.3% to around 32,000, recouping some losses from the previous session as investors cheered an upward revision in Japanese GDP data.
  • Japan’s annualized GDP for the first quarter was revised to 2.7%, higher than the consensus forecast of 1.9% and a preliminary reading of 1.6%.
  • Commodity-linked stocks led the advance.
    • Elsewhere, Eisai jumped 9.4% after the US FDA the trial  of its  Alzheimer’s disease drug suggests it offered a meaningful benefit to patients.
      • and safety concerns likely would not hamper its chances of a traditional approval. Reuters
         
• In Australia, the ASX 200 Index fluctuated around 7,118 on Thursday after falling for two straight sessions.
  • The gains in mining and energy stocks were offset by losses in technology and healthcare names.
  • Investors also continued to assess the outlook after data showed that Australia’s economy grew 0.2% in the first quarter,
    • the slowest rate of expansion in six quarters and missing forecasts for a 0.3% growth as household consumption weakened.
  • Mining and energy stocks advanced on firmer commodity prices, with gains from BHP Group (1.2%), Rio Tinto (1.2%).
    • But, technology and healthcare stocks tracked their US peers lower. Bloomberg

Crude oil

• US WTI crude futures flat lined  above $72 /bl after facing heightened volatility earlier in the week.
  • 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.
• It was the lowest level in years amid an effort to bolster crude prices.
  • The latest EIA report also showed that US crude inventories declined by 451,000 barrels last week,
    • defying expectations for a 1.022 million barrel increase and in line with industry data reported Tuesday.
    • 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. Gulf Energy news

Gold

• Gold was lower this morning after the spike in US yields.
  • Prices opening around the $1944/oz level.
  • Investors geared up for the US Federal Reserve’s interest rate decision next week.
  • Markets now pricing for a 25bps hike at next weeks key FOMC meeting.
  • Still, the metal remains down more than 5% from its May peak.
  • This as major central banks are anticipated to keep interest rates higher for an extended period due to persistent inflationary pressures. Kitco metals