Morning NOTE

GOOD MORNING

The ZAR weakened on the back of Global Negative Risk sentiment as the threat of the FED un-nerved investors.

• USDZAR 17.1900
• EURZAR 17.2200
• GBPZAR 19.9100

SOUTH AFRICA   

• Phala-Phala
  • CR insisting he did not evade questions and was purely acting on advice of his legal representatives.
    • Opposition parties were left outraged when President Cyril Ramaphosa once again cited legal processes for not providing them with specific details as to what transpired.
    • In addition, Justice Minister Ronald Lamola denied accusation that he interefered with the investigation.
    • He said officials did not know that the request was related to the incident on President Cyril Ramaphosa’s property.
• Justice and Correctional Services Minister Ronald Lamola told Parliament that the Gupta brothers were indeed behind bars and had been denied bail.
  • He also said that their extradition from the United Arab Emirates had not been delayed and was well within the extradition treaty time frame.
  • Lamola was taking questions in the National Assembly on Wednesday as part of the peace and security cluster. EWN
• Jacob Zuma was instructed to pay back nearly R8m on his Nkandala Bond, following the collapse of VBS BANK.
  • Zuma obtained the bond / loan a few months before VBS collapsed.
  • Jacob Zuma owes VBS Mutual Bank R6.5 million – he started defaulting on the loan soon after the bank was put under curatorship. News 24

GLOBAL MARKETS

Stocks:

• Equity market fell sharply in New York on the back of a spike in US yields.
  • In regular trading on Wednesday, the Dow lost 0.88%, the S&P 500 shed 0.78% and the tech-heavy Nasdaq Composite was down 0.56% for their fourth straight session of losses.
• US stock futures fell further on Thursday after the major averages closed out August with losses.
  • Traders nervous about the Federal Reserve’s aggressive plan to bring down inflation that sparked fears of slowing economic growth.
  • Dow futures fell 0.3%, S&P 500 futures dropped 0.5% and Nasdaq 100 futures declined 1%.
• In addition, Nvidia’s stock cratered on Wednesday, after announcing it’s been told by the U.S. government to stop selling chips in China and Russia.
  • The stock falling 6.5% in extended trading. CNBC
  • The company said it was applying for a license to continue some Chinese exports but doesn’t know whether the U.S. government will grant an exemption.

Bonds:

• The 10-year yield rose above 3.1% for the first since June 29th, as interest rates are set to continue to rise.
  • Fixed income markets are now pricing a 70% chance the Fed will hike rates by 75 bps at its September meeting.
  • In addition, the yield curve inversion continues with the 2-year Treasury yield hit 3.48%, its highest level since November of 2007.
• Earlier in the session Cleveland’s ‘ influential Fed governor, Loretta Mester said, she sees the Fed funds rate rising above 4% in early 2023.
  • This was needed to break the back of inflation.
  • She added, the rate increases, likely to slow economic growth, which she sees as running “well below 2%.”
  • She also added she DOES NOT SEE RATE CUTS IN 2023.

YESTERDAY

• The Dow fell 280 to 31,510
• The SP500 fell 31 to 3,955
• The Nasdaq  declined 66 to 11,816

Futures Trading:

• image : Trading economics

OVERNIGHT HEADLINES

• Asian markets lower across the region as the risk off theme continued. The fall in NEW YORK , feeding through into ASIA as the investors exit risk assets.
• In Japan, the Nikkei 225 fell 1.53% to close at 27,661. The index falling to its lowest levels in almost a month.
  • Traders citing a hawkish outlook on US interest rates and weak global economic data hampering investor sentiment.
  • Investors are also monitoring the Yen which has fallen to a fresh 24-year low on a widening policy gap with the US, sliding toward the key 140.
  • Analysts said the move could prompt Japanese authorities to intervene in the currency markets.  Reuters
• In Australia, the ASX 200 declined 2.02% to close at 6,846, as tightening monetary conditions and weak data across major economies escalated fears of a global economic slowdown.
  • Weak manufacturing PMI data from China and other major economies also exacerbated a softening global demand outlook.
  • This in turn pressuring Australia’s export-reliant, commodity-heavy industries.
  • Heavyweight iron ore miners led the declines, with sharp losses from BHP Group (-7.6%) and Fortescue Metals (-4.2%).  Reuters
     
• Crude oil traded below $90/bl as the US WTI benchmark contract fell sharply on Wednesday.
  • The final day of August trading confirming a third consecutive monthly decline, as recession worries and a weakening demand outlook overshadowed concerns about tighter supply.
  • Oil has fallen more than 20% in the past three months as major central banks aggressively raised interest rates to combat surging inflation.
  • China demand concerns also hitting the market on the back of global recessionary fears.
  • The sharp declines in oil prices also prompted Saudi Arabia to signal that OPEC+ could cut supply.
  • This would effectively neutralise the extra crude expected from a supply boost, should Iran it clinch a nuclear deal with the West. Gulf Energy News
     
• Gold hammered on the back of a rampant Dollar and rising interest rates.
  • Bullion prices lower and fast approaching key support at $1,700/oz.
  • Comments from Cleveland Fed President Loretta Mester, that the policy rate will have to be moved “somewhat above 4%” by early next year sucked the life out of Gold bulls resulting in heavy selling.  
  • She added for good measure, she does not anticipate rate cuts in 2023.
  • Eurozone inflation rate also hit a new record high of 9.1% in August on high energy prices, bolstering speculations for a supersized 75 basis point rate hike from the ECB next week despite recession worries.
  • NB: higher interest rates raise the opportunity cost of holding non-yielding bullion, denting its appeal. Kitco metals
     
• The US Dollar rallied above 109 and once again reached its highest level in 20 years.
  • The buck supported by Cleveland Fed President Loretta Mester, that she does not anticipate rate cuts in 2023.
  • Markets are currently priced for a third straight 75 basis point rate hike in September, as investors look ahead to the monthly jobs report on Friday to gauge the strength of the labour market.  Fx news