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Morning NOTE

GOOD MORNING

The ZAR continued to strengthen on the back of a Weaker US dollar as US yields declined.

OPENING RATES

• USDZAR : 18.8500
• EURZAR : 20.3200
• GBPZAR : 23.6800

SOUTH AFRICA

Renewables
Cape Town races ahead to end load shedding, while Joburg fiddles

• Cape Town’s plan is ambitious.
  • Approximately R2.3 billion will be spent over the next three years across multiple streams:
    • procurement from Independent Power Producers (IPPs),
    • demand-side management,
    • maintenance and the operation of its Steenbras pumped storage scheme,
    • buying surplus power from households and businesses, and building city-owned plants and battery storage.
  • Mayor Geordin Hill-Lewis was clear on its strategy last year
    • : “I think we must be really aggressive about trying to reduce our reliance on Eskom, and to bring additional capacity on-line as quickly as possible.” Money web

Water

• President Cyril Ramaphosa said that maintenance of infrastructure was critical in addressing the country’s water problems.
• The president visited Hammanskraal in north of Pretoria on Thursday to assess the Rooiwal water treatment plant.
• The plant which has not been maintained for years, has been the source of contaminated tap water in Hammanskraal and surrounding areas. EWN

PUTIN

• Minister in the Presidency Khumbudzo Ntshavheni said South Africa had no intention of arresting Vladimir Putin after the ICC issued an arrest warrant against him.
• She said government would defend its decision to classify the panel report into the Lady R docking.
• The report pertains to whether any arms were sold to Russia during its invasion of Ukraine.
• Ntshavheni added that South Africa could not risk war with Russia by arresting President Vladimir Putin,
  • when he attends the BRICS (Brazil, Russia, India, China, and South Africa) summit later this year. Ewn

GLOBAL MARKETS

Stocks

On Thursday, the Dow rose 0.5%, the S&P 500 gained 0.62% and the Nasdaq Composite rallied 1.02%.

• Seven out of the 11 S&P sectors finished higher, led to the upside by consumer discretionary and technology.
• Those gains came as a sharp fall in Treasury yields boosted technology and other growth stocks,
• After a surge in new unemployment claims bolstering bets for a pause in the Federal Reserve’s interest rate hikes next week

US stock futures held steady on Friday after the major averages posted strong gains during Thursday’s regular session, with the S&P 500 closing at its highest level for 2023.

• Futures contracts tied to the three major indexes were all trading near breakeven.
• GM and Tesla also gained 4% and 5%, respectively, after announcing that GM will join Ford Motor in partnering with Tesla to use the EV-maker’s charging network in North America. CNBC

Bonds

• The yield on the US 10-year Treasury briefly touched 3.82% before dropping below 3.75%, after initial jobless claims jumped to the highest since October of 2021.
  • The weaker jobs data  lowering bets of a rate hike in the Fed funds rate next week and in July.
  • Traders now await the US CPI report due Tuesday and the PPI on Wednesday for further clarity on inflationary pressures,
    • the last key economic indicators before the FOMC decision later on Wednesday.
       
• South Africa’s 10-year government bond yield was around 10.83%, its lowest since May 16th and moving further away from a recent three-year high of 11.32%.
  • SA bonds back in favour as global investors eyed the prospects of a potential pause in interest rate-hiking by the US Federal Reserve.
  • Domestically, the SARB remains reluctant to pivot away from policy tightening.
  • The Bank raising its benchmark interest rate into restrictive territory amid the rand weakness. Reuters

Yesterday

• DOW  added 168 to 33,833
• SP500 gained 26 to 4,293
• NASDAQ  gained 133 to 13,238

  image: Trading economics

OVERNIGHT HEADLINES

The US dollar

• The US dollar declined below the key 104 level to trade as low as 103.30.
  • The Buck losing more than 0.8% in the previous session.
  • Traders citing it was tracking weakness in Treasury yields as a surge in weekly jobless claims reinforced expectations that the Federal Reserve will pause its interest rate hikes next week.
  • The greenback was also down 0.6% so far this week, on track to decline for the second consecutive week.
  • Weekly claims jumped to 261K last week, posting the highest reading since October 2021 and exceeding forecasts of 235K.
  • Markets now anticipate the Fed to hold rates steady at next week’s policy meeting, before resuming the tightening cycle in July.
  • Investor also look ahead to US inflation data on Tuesday, as well as interest rate decisions from the European Central Bank and the Bank of Japan next week. FX News

Asian markets

Eastern markets higher following  higher than expected US weekly claims, that send Yields lower.

• In Japan, the Nikkei 225 rallied 1.4% to above 32,000, rising for the first time in three sessions and taking cues from a strong lead on Wall Street.
  • Stocks in New York supported after a sharp fall in Treasury yields boosted technology and other growth stocks.
  • Those moves came as latest data showed that new unemployment claims in the US surged to an over 1-1/2 -year high last week.
  • Traders now citing it as a reason for the FED to pause in the Federal Reserve’s interest rate hikes this month.
     
• In Australia, the ASX 200 Index rose 0.3% to around 7,120 on Friday, snapping a three-day decline.
  • Mining stocks leading the advance amid firmer metals prices.
  • Australian shares also tracked gains on Wall Street overnight as a sharp fall in Treasury yields boosted technology and other growth stocks.
  • Iron ore, lithium and gold miners led the charge, with gains from BHP Group (1.2%), Rio Tinto (0.4%).
  • Other index heavyweights also advanced, BUT, energy stocks declined after oil prices tumbled overnight. Reuters

Crude oil

• US WTI crude futures fell to around $71/bl and were on track to decline for the second straight week.
  • This as economic fears and the prospect of higher global supply outweighed Saudi Arabia’s announcement of another output cut in July.
  • Investors continued to grapple with the prospect of further interest rate hikes from major central banks that could negatively impact overall demand.
  • New concerns about the economic uncertainties in top crude importer China.
  • The US oil benchmark also tumbled as much as 4.8% on Thursday following news that the US and Iran reached a temporary nuclear agreement .
  • It would allow Iran to resume oil exports of around 1 million barrels per day.
  • However, both countries denied the report, causing oil prices to recoup most of Thursday’s losses. Gulf energy News

Gold

• Gold steadied remained $1,960/oz on Friday and was on track to end the week higher.
  • Prices supported by a softer dollar as a surge in US weekly jobless claims reinforced expectations that the Federal Reserve will pause its interest rate hikes next week.
  • Markets now anticipate the Fed to hold rates steady at next week’s policy meeting, before resuming the tightening cycle in July.
  • The ECB and the BOJ are also set to decide on monetary policy next week.
  • Investors also remain cautious as the IMF urged major central banks to “stay the course” on monetary policy and watch inflation closely.
  • The RBA and the BoC both unexpectedly raised interest rates this week, raising the odds that other advanced economies could follow suit. Kitco metals report

The Aussie

• The Australian dollar appreciated to around $0.6700, hitting its strongest levels in four weeks after the Reserve Bank of Australia raised interest rates again.
  • The RBA has now lifted the cash rate for 12 meetings since May last year, bringing borrowing costs to an 11-year high of 4.1%.
  • The central bank said the hike would provide greater confidence that inflation would return to the target within a reasonable timeframe. FX news

The Loonie

• The Canadian dollar strengthened past 1.3350 per USD in June.
  • It was the highest in two months, after the Bank of Canada defied market expectations and raised its key interest rate by 25bps to 4.75%.
  • The decision marked the resumption of the central bank’s tightening cycle after two consecutive holds.
  • Following the hike, policymakers maintained the forecast that headline inflation will slow to 3% by the summer, although the bank warned that price growth could remain sticky above the 2% target.
  • The latest data showed that the Canadian CPI rose by 4.4% in April, well above market forecasts of 4.1% and picking up from 4.3% in March. FX news