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Morning NOTE

08 May 2023

GOOD MORNING

The ZAR recovered from weaker trading levels after a stronger than expected US jobs report surprised the markets.

SUMMARY

The Rand lost ground on Friday after the US NFP surprised to the upside with more jobs created than expected as well as a drop in the unemployment rate.

  • However, markets turning its attention to the this week’s US inflation report and a another benign report will likely be risk asset supportive.
  • Traders expecting 5% increase in Consumer prices that matches the previous level.
  • Month on month also expected higher at 0.4% vs 0.1% previous.
  • The Dollar remains under pressure following last week’s Fed pivot and largely ignoring the stronger than expected US NFP report.
  • All focus turning towards Wednesday’s key US Inflation report.
    • DOLLAR 100.84 / EURUSD 1.1048
    • GOLD 2021
    • SP500 4135 **
    • US10YT 3.40%

Eskom remains a drag as lack of electricity production likely to support weaker than expected mining and manufacturing data.

  • In addition , President Cyril Ramaphosa has authorised the deployment of 800 SANDF members.
    • They will safeguard a number of Eskom power stations across the country.

Data This week
Monday

  • 08h00 : SA FOREIGN EXCHANGE RESERVES  ACTUAL $61.75BN VS  $61.72BN EXPECTED
  • 17H00 : US CONSUMER INFLATON EXPECTATIONS 4.5% FORECAST VS 4.7% PREVIOUS

Tuesday

  • Nothing of significance

Wednesday

  • 14h30 : US CPI (INFLATION)  YOY  5% EXPECTED VS 5% EXPECTED
  • 14h30 : US CORE CPI (INFLATION) YOY  5.5% EXPECTED VS 5.6% EXPECTED
  • 14h30 : US CORE CPI (INFLATION) YOY  0.4% EXPECTED VS 0.4% EXPECTED

Thursday

  • 11h30 : SA MINING PRODUCTION -4.3% MOM VS -4.9% PREVIOUS
  • 11h30 : SA MINING PRODUCTION -7.3% YOY VS -5% PREVIOUS
  • 11h30 : SA MANUFACTURING PRODUCTION -0.9% MOM VS -1.3% PREVIOUS
  • 11h30 : SA MANUFACTURING PRODUCTION -5.8% YOY VS -5.2% PREVIOUS
     
  • 13H00 : UK BOE RATE DECISION 4.5% VS 4.25% PREVIOUS (+25 BPS)
     
  • 14H30 : US PPI 2.5% EXPECTED VS 2.7% PREVIOUS

FRIDAY

  • 08H00 : UK GDP 0.2% EXPECTED VS 0.6% PREVIOUS
  • 16H00 : US MICHIGAN CONSUMER SENTIMENT 63 VS 63.5 PREVIOUS

Market Movement Today:

  • The Rand recovering in early European trading following last week’s decline towards the 18.5000 level.
  • This morning we opening nearly 20 cents stronger on the back of positive risk sentiment following a late rally on Wall Street.
     
  • Markets now firmly focussed on Wednesday’s US CPI release.
    • Following last week’s Dovish Fed pivot, we continue to see and expect an increase in demand for risk assets.
       
  • The decline or even (stalling in rally) of US rates will continue to attract investor demand.
  • The Dollar under pressure in early trading after it fell below 101 and we expect this trend to gain momentum.
    • DOLLAR 100.84 / EURUSD 1.1048
    • GOLD 2021
    • SP500 4135 **
    • US10YT 3.40%
       
  • However, Globally the story continues to be the FED and rates.
  • Any pause or cut will strongly support risk assets as the “ risk off trade – illustrated by the rise of the Dollar remains strongly “stretched”.
  • THIS WILL BE ZAR SUPPORTIVE.
     
  • As we head into Wednesday, US CPI, we expect a stronger ZAR on Monday and Tuesday,
  • With profit taking on Wednesday (ahead of the data print), resulting in a weaker ZAR (on Wednesday).
  • Local risk to the ZAR remains Eskom; with concerns around JHB’s grid starting to make headlines.
  • Trade : TRADE SELL USDZAR ON RALLIES .

Expected Ranges:

  • USDZAR : Expect a range 18.2400-18.5100
    • Importers : 18.3300-18.2400
    • Exporters : 18.4200-18.5100
       
  • EURZAR : Expect a range of 20.1800-20.3900
    • Importers : 20.2500-20.1800
    • Exporters : 20.3200-20.3900
       
  • GBPZAR : Expect a range of 23.0900-23.3600
    • Importers : 23.1800-23.0900
    • Exporters : 23.2700-23.3600

OPENING RATES

  • USDZAR : 18.3600
  • EURZAR : 20.2700
  • GBPZAR : 23.2200

SOUTH AFRICA

ESKOM

  • The Hawks in Mpumalanga, where most of Eskom’s power stations are located, have notched up a series of successful arrests and convictions involving fraud against Eskom since the start of the year.
    • In another case this week, Nwabisa Ngxola, a former admin clerk at Eskom, was found guilty and sentenced on charges of fraud, corruption, and money laundering.
    • She was sentenced to 10 years for 16 counts of fraud, a further seven years for 39 counts of corruption and another seven years for 48 counts of money laundering. Moneyweb
       
  • Joburg City Power: Broke and loss-making, with a grid on the brink
    • Residents endure outages of up to 60 hours as underinvestment plagues city electricity network.
      • Johannesburg’s City Power is at breaking point.
      • At the end of September, its overdraft stood at R9.1 billion, an increase of nearly R2.4 billion from the end of June.
    • On practically every measure, its financial position is dire.
      • Collections are far below what was anticipated. Moneyweb

SANDF

  • President Cyril Ramaphosa has authorised the deployment of 800 SANDF members.
    • They will safeguard a number of Eskom power stations across the country.
    • The deployment is expected to cost more than R146 million.
    • Ramaphosa has informed National Assembly Speaker Nosiviwe Mapisa-Nqakula and NCOP chairperson Amos Masondo in writing. News24

GLOBAL MARKETS

  • European equity markets were set to open higher on Monday, likely extending gains from the previous session.
  • investors looking ahead to more economic data, corporate earrings and the Bank of England’s interest rate decision this week.
     
  • Last week, both the Federal Reserve and the European Central Bank tightened policy further, but the former hinted at a possible end to its aggressive rate-hike cycle.
     
  • In the USA last week, the major averages came under heavy selling pressure due to recession fears and renewed concerns over the banking sector.
  • However, the market staged a sharp rebound on Friday, with the Dow gaining 1.65%, the S&P 500 jumping 1.85% and the Nasdaq Composite rallying 2.25%.
     
  • Investors now await US consumer inflation on Wednesday and producer inflation on Thursday.

Bonds

  • US 10 Year Note Bond Yield was 3.44 percent on Monday May 8, according to over-the-counter interbank yield quotes for this government bond maturity.
    • After a higher than expected  US jobs report markets are focussing squarely on Wednesday’s US CPI .
    • Nb: Directional bias will likely come from this event.

On Friday

  • DOW added 546 to 33,674
  • SP500 gained 75 to 4,136
  • NASDAQ  gained 269 to 12,235

  image: Trading economics

OVERNIGHT HEADLINES

The US Dollar

  • The dollar index declined below 101 on Monday, extending last week’s decline as the Federal Reserve hinted at an end to its aggressive tightening cycle.
  • On Wednesday, the Fed delivered a widely expected 25 basis point rate hike but removed language from its policy statement that it “anticipates” further rate increases would be needed.
  • However, Fed Chair Jerome Powell clarified that the committee is not currently advocating for rate cuts based on their inflation outlook.
  • The April jobs report released Friday also showed that the US economy unexpectedly added 253K jobs in April, well above forecasts of 180K while wages grew the most in 9 months.
  • Investors now look ahead to US consumer inflation data on Wednesday and producer inflation data on Thursday, as well as bank lending figures to guide the economic and monetary policy outlook. Fx news

Asian markets mixed following Friday’s rally on Wall Street. The stronger than expected jobs report providing some uncertainty ahead of Wednesday’s US CPI report.

  • In Japan, the Nikkei 225 Index fell 0.71% to close at 28,950, as Japanese markets caught up with global peers after a three-day holiday.
    • Investors also digested the latest Bank of Japan policy meeting minutes which showed that board members discussed concerns over inflation rising more than expected, but warned against hasty changes to monetary policy.
    • One member said that missing a chance to achieve price stability due to a hasty policy change should be considered a bigger risk than a delay in policy change.
    • Notable losses were seen from index heavyweights including Mitsubishi UFJ (-1.7%), Sony Group (-1.9%), Fast Retailing (-3.1%), SoftBank Group (-1%) and Shiseido Company (-4.9%). REUTERS

Crude oil

  • US WTI crude futures rallied to $71/bl after a period of heightened market volatility.
    • Investors continued to assess the global demand and supply outlook for oil.
    • The US oil benchmark sank as much as 17% last week as concerns that higher interest rates could tip the global economy into recession and hurt energy demand gripped financial markets.
      • However, oil prices were able to retrace more than half of those losses toward the end of last week as risk sentiment improved.
    • Investors now look ahead to the US EIA’s short-term outlook report on Tuesday and OPEC’s monthly outlook report on Thursday for clues on how the market may shape up toward the end of the year.
      • Saudi Aramco, the world’s largest oil producing company, will also release its earnings report this week. Gulf energy news

Gold

  • Gold prices rose above $2,020/oz on Monday, recouping some losses from the previous session amid a general greenback weakness, while investors continued to assess the economic and monetary policy outlook.
  • Last week, the metal reached near record-highs as the US Federal Reserve delivered a widely expected 25 basis point rate hike but hinted at a possible end to its aggressive tightening cycle.
  • However, gold prices tumbled nearly 2% on Friday as data showed that the US economy unexpectedly added 253K jobs in April, exceeding forecasts of 180K and tempering fears of a looming recession in the country.
  • Investors now look ahead to US consumer inflation data on Wednesday for more clues on the likely direction of US monetary policy. Kitco metals

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