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Morning NOTE

1 November 2022

GOOD MORNING

The ZAR gained on the back of  Risk On sentiment after major US banks hinted of the potential for a FED pivot in Q1 2023.

SUMMARY

The Rand followed global markets higher after sentiment switched from negative to positive following comments from major US investment banks.

  • Global stocks higher this morning as traders remain hopeful for a dovish Fed.
    • The US central bank is widely expected to deliver its fourth straight 75 basis point rate hike on Wednesday.
    • but markets will be looking for guidance on its future plans.
       
  • The dollar rally slowing down, as the index fell below 111.5, easing from a one-week high hit in the previous session as risk sentiment improved.
    • Equities and commodity-linked currencies surging higher. These include the ZAR.
    • Still, the Dollar  was kept supported as persistent inflationary pressures in the US reinforced expectations that the FED will remain aggressive in its tightening campaign.
    • Analysts also pointed out that the US economy proved more resilient than anticipated even in the face of slowing global growth, supporting bets for further monetary tightening. 
       
  • The USDZAR likely to remain under pressure and we don’t expect any rapid ZAR gains if the Fed continues on this path.
     

Significant Market Data:

  • FOMC AND NON FARM PAYROLLS

TUESDAY

  • 16H00: US ISM MANUFACTURING -OCTOBER – 49.9 EXPECTED VS 50.9 PREVIOUS
     

WEDNESDAY

  • 14H15 : ADP – US PRIVATE PAYROLLS  +190K EXPECTED VS 208K PREVIOUS
  • 20H00 : US FOMC  INTEREST RATE DECISION + 75 BPS  – FED FUNDS TO 4% TO 3.25% PREVIOUS.
  • 20H30 : FED PRESSER 
     

THURSDAY

  • 14H00: UK BOE  INTEREST RATE DECISION  +75 BPS EXPECTED NEW RATE 3%  PREVIOUS 2.25%
  • 14H00: UK MPC MINUTES
  • 16H00: US ISM NON MANUFACTURING 55.4 EXPECTED VS 56.7
     

FRIDAY

  • 14H30: US NON FARM PAYROLLS OCTOBER  200K EXPECTED VS 263K PREVIOUS
  • 14H30: US UNEMPLOYMENT RATE 3.6% VS 3.5% PREVIOUS

Today:

  • We expecting a stronger ZAR, but within yesterday’s range of 18.1000-18.3800.
     
  • Levels closer to 18.0000, remain good buying opportunities for Importers
    • The market likely to test both sides of the range ahead of the Fed’s FOMC decision tomorrow night.
    • Currently markets trading risk on after Major banks called for a pivot .
      • NB: THIS WAS NOT THE FED, BUT BANKERS CALLING FOR A PIVOT.
    • The US10YT also remains above 4%, and this likely to slow any rapid advance in the ZAR.
       
  • Once again ahead of very important data week, we encourage both importers and exporters to hedge at least 50% of short term exposures.
     
  • Trade: USDZAR Range trading: BUY below 18.2000 / SELL ABOVE 18.3000

Expected Ranges

  • USDZAR :  Expect a range 18.1200-18.4800
    • Importers 18.2400-18.1200
    • Exporters 18.3600-18.4800
       
  • EURZAR :  Expect a range of 17.8500-18.3000
    • Importers 18.000-17.8500
    • Exporters 18.1500-18.3000
       
  • GBPZAR :  Expect a range of 20.9000-21.2000
    • Importers 21.000-20.9000
    • Exporters 21.10000-21.2000

OPENING RATES

  • USDZAR 18.2600
  • EURZAR 18.1200
  • GBPZAR 21.0500

SOUTH AFRICA

  • The fallout of the MTI crypto scam continues.
    • Days after the SARS asked the Cape High Court to appoint its own co-liquidator to oversee the winding up of Mirror Trading International (MTI),
    • The liquidators of the failed crypto scheme fired back with a missile of their own, telling Sars: We owe you nothing.
    • In a statement issued on Monday, MTI liquidators said after receiving a creditor claim of R931 million from Sars, they returned fire by submitting tax returns declaring zero tax liability. Iol
       
  • South Africa recorded a trade surplus of R19.70 billion in September, up from a revised surplus of R6.20 billion in August, data from the revenue service showed on Monday.
    • Exports rose 10.0% month on month to R191.56 billion in September, while imports were up 2.3% at R171.86 billion, the South African Revenue Service said. News24
       
  • Finance Minister Enoch Godongwana says government’s commitment to take on between a third and two-thirds of Eskom’s R400 billion debt will come with conditions.
    • This will include an investment in “old reliable technologies” like nuclear and gas.
    • Godongwana defended minerals minister Gwede Mantashe against a “massive attack” from renewable energy lobbies. Moneyweb

GLOBAL MARKETS

  • US stock futures were higher on Tuesday after the major averages closed out a strong monthly performance.
    • Traders look ahead to the highly-anticipated FOMC decision on Wednesday.
    • Futures contracts tied to the three major indexes all traded in positive territory.
    • The Dow rallied 13.95% in October for its best month since 1976, while the S&P 500 and Nasdaq Composite gained 8% and 3.9%, respectively.
       
  • Those monthly gains came as stocks bounced from oversold conditions and as markets speculated on a potential slowdown in Fed tightening,
    • The FED is widely expected to deliver its fourth straight 75 basis point rate hike on Wednesday, but markets will be looking for guidance on its future plans.
    • Meanwhile, the third quarter earnings season continues, with reports from major firms on Tuesday including Eli Lilly, Pfizer, AMD, Airbnb and Uber.

Bonds:

  • The bond market trading sideways with the US10YT at 4.00% .
  • This is to be expected as traders await for news from the world’s largest central bank. 

YESTERDAY

  • The Dow fell 128 to 32,732
  • The Sp500 fell 29 to 3,871
  • The Nasdaq declined 114 to 10,988

OVERNIGHT HEADLINES

  • Asian markets higher across the board on the back of improved risk sentiment following a rally in New York.
    • In Japan the Nikkei 225 rose 0.33% to 27,679, closing at their highest levels in six weeks, as markets awaited the US Federal Reserve’s interest rate decision on Wednesday.
      • Upbeat corporate results also boosted Japanese shares, with earnings-driven rallies from Mercari (17%), Japan Tobacco (9.5%) and Komatsu (4.8%).
    • However the Yen remained under pressure, following the widening policy divergence as the Bank of Japan maintained its policy of ultra-low interest rates,
      • …while the US Federal Reserve is expected to tighten further to fight persistent inflationary pressures.
    • In Australia, the ASX 200 Index rallied 1.65% to 6,977 on Tuesday, closing at its highest level in seven weeks,
      • This after the Reserve Bank of Australia raised the cash rate by 25 basis points to 2.85%, defying some bets for a bigger move.
        • The Bank opting to slow the pace of rate hikes as it tries to balance efforts to bring down inflation with the desire to keep the economic momentum going. 
        • The RBA has now lifted borrowing costs by a total of 275 basis points since May.
      • The move marked the seventh straight rate hike, taking borrowing costs to a level not seen since April 2013.
        • The RBA board mentioning further rate hikes will be needed as inflation in Australia is too high.
        • The committee added that it now saw inflation peaking around 8% this year, vs 7.75% previous.  Reuters
           
  • The US Dollar  fell below 111.5 on Tuesday, easing from a one-week high hit in the previous session as risk sentiment improved, with equities and commodity-linked currencies surging higher.
    • Still, the greenback was kept supported as persistent inflationary pressures in the US reinforced expectations that the Federal Reserve will remain aggressive in its tightening campaign.
    • Analysts also pointed out that the US economy proved more resilient than anticipated even in the face of slowing global growth, supporting bets for further monetary tightening.
    • The Fed is widely expected to hike rates by another 75 basis points this week, though markets will be looking for guidance on its future tightening plans as a dovish surprise could weigh on the dollar. FX news
       
  • Brent crude futures steadied above $93 per barrel on Tuesday after declining for two straight sessions,.
    • Traders continued to assess the  uncertain outlook for oil markets over a global economic slowdown, while the supply outlook remained tight.
      • Expected  interest rate hikes from major central banks this week and assessed a raft of manufacturing PMI data that mostly pointed to weakening economic activity.
      • A worsening Covid situation in top crude importer China also weighed on markets.
    • Earlier this morning, BP- posted a net profit, of $8.2 billion for the three months through to the end of September.
      • That compared with $8.5 billion in the previous quarter and a net profit of $3.3 billion over the same period a year earlier.
      • Analysts polled by Refinitiv had expected third-quarter net profit of $6 billion. CNBC
         
  • Gold prices stabilized near $1,640/oz after sliding for three straight sessions, as traders avoided making big bets ahead of a highly-anticipated US Federal Reserve meeting.
    • The metal was recently pressured by a rebound in the dollar and Treasury yields as underlying inflation pressures in the US remain elevated, keeping the Fed on course to hike rates by another 75 basis points this week.
      • Also Markets, will be looking for guidance on the Fed’s future tightening plans, as a dovish surprise could help lift bullion prices.
      • While gold is widely considered as a hedge against inflation and economic uncertainties, higher interest rates raise the opportunity cost of holding non-yielding bullion, denting its appeal. Kitco metals

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