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Morning NOTE

GOOD MORNING

The ZAR  consolidated at weaker levels after reaching 17.5000 , ahead of tonight’s all important FED FOMC meeting.

OPENING RATES

• USDZAR 17.4000
• EURZAR 18.9200
• GBPZAR 21.4300

SOUTH AFRICA

Loadshedding returns to stage 5 and 6

• Eskom implemented stage six load shedding on Tuesday night, following a breakdown of six electricity generating units over the last 24 hours.
  • The SOE said, “Stage five load-shedding will be implemented from 12pm this afternoon until 9pm tonight.
  • Thereafter stage six load-shedding will be implemented until 5am tomorrow morning.
  • “In the last 24 hours, six generating units have suffered breakdowns, of which a unit each at Duvha and Hendrina have not yet returned to service.”
    • Eskom has, in the past couple of days, been implementing stage four load-shedding.  M&G
       
• Cyril Ramaphosa convened his Cabinet for a lekgotla on Wednesday and on the agenda remains declaring a national state of disaster to address the country’s worsening power crisis.
  • The meeting was expected to set government’s priorities for the year.
  • The gathering of government leaders follows the ANC lekgotla which saw party leaders thrown their weight behind a state of disaster to fast track government actions to end load shedding. EWN

GLOBAL MARKETS

Stocks:

• In trading on Tuesday, the Dow rose 1.09%, the S&P 500 jumped 1.46% and the Nasdaq Composite rallied 1.67%, with all three benchmarks finishing January higher.
  • US stock futures eased on Wednesday as investors braced for a highly-anticipated interest rate decision from the Federal Reserve.
  • Nasdaq 100 futures fell 0.4%, while S&P 500 and Dow futures lost 0.2% and 0.15%, respectively.
  • The strong end to the month on the back of easing inflationary pressures in the US bolstered bets that the central bank will deliver a smaller 25 basis point rate hike on Wednesday, while investors will watch for dovish hints from the Fed. CNBC

Bonds:

• The yield on the US 10-year Treasury note, seen as a proxy for global borrowing costs, consolidated above 3.5% as investors reassessed the Federal Reserve’s plans for rate hikes and the potential impact on the economy.
  • The US GDP expanded by 2.9% in the last quarter of 2022, beating market expectations of a 2.6% advance, underscoring the economy’s resilience, and adding leeway for the Federal Reserve to extend its hawkish momentum.
    • however data keeps on supporting a dovish lookout for rates.
  • Still, a report showed that core PCE price inflation fell to a 14-month low of 4.4% in December, offering hope that inflation stateside has peaked.
    • Also, wage growth data slowed as well a slower than expected housing sector adding fuel to the fire that the world’s largest economy continues to face head winds. Reuters

Yesterday

• The Dow  gained 368 to 34,086
• The Nasdaq added 190 to 11,584
• The Sp500  gained 58 to 4,076

•   Image: Trading Economics

OVERNIGHT HEADLINES

• The US dollar index remained around the 102.1 level on Wednesday.
  • The buck remained under pressure on the back of a dovish outlook for US rates.
  • The dollar booked its fourth straight monthly decline in January as growing fears of a US recession and bets for a slower pace of central bank policy tightening weighed on the currency starting from October last year.
  • Continued signs of cooling inflation in the US bolstered expectations of less aggressive Federal Reserve policy tightening.
  • Data on Tuesday showed that US wage growth slowed in the fourth quarter of 2022, while US house prices rose at a weaker pace in November.
  • Last week, data also showed that the Fed-preferred core PCE inflation measure in the US slowed to an over one-year low in December.  FX news
     
  • The Fed is widely expected to deliver a smaller quarter-point rate hike on Wednesday,
    • while traders will be looking for guidance on the path for interest rate rises.
  • The Bank of England and the European Central Bank are also set to tighten policy further this week.
  • Gold is highly sensitive to the rates outlook as higher interest rates raise the opportunity cost of holding non-yielding bullion and vice versa. Kitco metals report
     
• Asian Markets tracking Wall Street higher following a strong end to the month in New York.
  • Stocks rebounding as investors looked for bargains in anticipation of a dovish Fed as we head into 2023.
• In Japan, The Nikkei 225 rose 0.07% to close at 27,347, with Japanese shares struggling for direction as caution dominated sentiment.
  • • Traders waiting on the side ahead of a highly-anticipated interest rate decision from the US Federal Reserve.
    • Mixed domestic corporate earnings also weighed on sentiment, as well as lingering uncertainties about new export restrictions in China that may affect Japan’s chip equipment sector.
• In China, the Shanghai Composite rose 0.4% to around 3,268, tracking a global equity rally as signs of cooling inflation in the US bolstered expectations of less aggressive Federal Reserve policy tightening.
  • The sentiment a positive for Risk assets.
  • Investors also reacted to a private survey showing Chinese manufacturing activity remained contractionary in January.
  • Meanwhile, data released on Tuesday showed that China’s manufacturing and services sectors unexpectedly returned to growth in January,
    • Traders citing the country’s abrupt exit from zero-Covid policy boosted economic activities.
    • High-growth new energy and technology stocks led the advance.
       
• Brent crude oil futures steadied above $85/bl on Wednesday and US Crude oil steadied near $79/bl.
  • Traders cautiously awaited a highly-anticipated US FOMC decision and production guidance from OPEC and its allies.
  • The Fed is widely expected to deliver a smaller 25-point rate hike on Wednesday on the back of cooling inflation.
    • Investors will also be watching for dovish hints after the meeting.
  • OPEC+ is also expected to maintain its current oil production levels at a monitoring meeting on Wednesday.
    • The group cautiously awaits clarity on the impact of China’s economic reopening and the latest sanctions on Russian supply.
    • Worryingly for Bulls, were  industry data showing US crude inventories increased by 6.3 million barrels last week despite forecasts for a 1 million barrel decline. Gulf energy news
       
• Gold prices recovered to trade above  $1,920/ oz following a rebound in risk assets.
  • Bullion traders are all  geared up for a key Federal Reserve policy decision, with signs of cooling US inflation bolstering expectations for less aggressive interest rate hikes.
• Data on Tuesday showed that US wage growth slowed in the fourth quarter of 2022, while US house prices rose at a weaker pace in November.
  • Last week, data also showed that the Fed-preferred core PCE inflation measure in the US slowed to an over one-year low in December.