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Morning NOTE

GOOD MORNING

The ZAR managed to achieve more gains on the back of a weaker Dollar as markets anticipate a Dovish Fed for 2023.

OPENING RATES

• USDZAR 16.9500
• EURZAR 18.1900
• GBPZAR 20.6300

SOUTH AFRICA

Eskom crises

• With chronic power cuts continuing to bedevil South Africans, Parliament wants answers from Eskom.
• Public Enterprises committee chairperson Khaya Magaxa said Eskom management will be called to Parliament even before it officially opens next month.
• The country experienced unprecedented load shedding last year, including over the holiday period.

Covid-19

• The  elderly and people with comorbidities should wear masks as a preventative measure.
• Experts have warned, after South Africa registered its first case of the new COVID-19 Omicron subvariant.
  • While most scientists said South Africa had largely achieved immunity to Omicron, health organisation Higher Health CEO Ramneek Ahluwalia urged vulnerable persons to exercise caution. EWN
     
• Joburg City Power said it was struggling to clear the backlog of outages outside of the scheduled power cuts.
  • The utility said its technicians were attending to outages across Johannesburg following 17 incidents of cable theft and vandalism.
  • The incidents occurred over the weekend, with eight reported in Roodeport alone.
  • Spokesperson Isaac Mangena said acts of criminality posed a major challenge for the utility and leaves residents without power for longer periods.

GLOBAL MARKETS

Stocks:

• US stock futures were little changed in Asian trade on Tuesday after the major averages ended mixed during Monday’s regular session.
  • After hawkish remarks from Federal Reserve officials brought down hopes that the central bank might dial back its aggressive monetary tightening.
    • Futures contracts tied to the three major indexes all traded near breakeven.
• On Monday, the Dow and S&P 500 erased early gains to end 0.34% and 0.08% lower, respectively,
  • This after the Fed’s Mary Daly said she expects rates to rise somewhere above 5% and
• Fed’s Raphael Bostic noted that policymakers should hike above 5% by early in the second quarter and hold rates there for a long time.  Reuters

Bonds:

• The US 10-year yield, consolidated around 3.5%, as signs of an imminent recession in the US and prospects of a less aggressive monetary tightening from the Federal Reserve lifted appetite for government debt.
  • Data from the Institute for Supply Management (ISM) showed a contraction in December in US manufacturing and services activity.
  • While average hourly earnings slowed more than expected.
• Traders turning attention to the CPI report, due on Thursday, for hints on how much further the Federal Reserve may tighten financial conditions as it seeks to cool an overheating economy.
  • Money markets are betting that the US central bank will hike rates by 25 basis points in February 2023.

Yesterday

• The Dow fell 112 to 33,517
• The SP500 fell 2.99 to 3892
• The Nasdaq gained 66 to 10,635

•   Image: Trading Economics

OVERNIGHT HEADLINES

• The US dollar index held its recent decline to around 103.2, but found some support following comments from prominent US FED officials.
  • On Tuesday, trading near its lowest levels in seven months as investors continued to assess the likely path of Federal Reserve interest rate hikes.
    • The greenback lost nearly 2% in the past two sessions as softer-than-expected US data tempered expectations that the Fed will continue to hike rates aggressively.
    • Atlanta Fed Bank President Raphael Bostic noted that policymakers should hike above 5% by early in the second quarter and hold them there for a long time.
  • Investors now look ahead to the December inflation report on Thursday for further clues about the Fed’s next move, as well as Fed Chair Jerome Powell’s speech later on Tuesday. FX news

Asian markets

• In Japan, the Nikkei 225 climbed 0.78% to close at 26,175 rising for the third straight session, as Japanese technology stocks tracked their US peers higher.
  • The tech-heavy Nasdaq gained for the second straight session on growing expectations that US inflation may be easing.
  • But investors remain cautious as hawkish remarks from Federal Reserve officials countered hopes that the central bank might dial back its aggressive monetary tightening.
  • Meanwhile, investors assessed data showing the core inflation rate in Tokyo exceeded forecasts in December, while household spending in Japan unexpectedly fell in November. 
     
• Brent crude oil fell toward $79/bl on Tuesday, pausing a recent advance as hawkish remarks from US Federal Reserve officials outweighed hopes for a demand recovery in China.
  • San Francisco Fed Bank President Mary Daly said she expects the central bank to raise rates to somewhere over 5%,
    • while Atlanta Fed Bank President Raphael Bostic noted that policymakers should hike above 5% by early in the second quarter and hold them there for a long time.
  • Meanwhile, Beijing recently provided refiners and traders with a generous import quota in its second allocation for 2023,
    • as China gears up for growth after rapidly dismantling strict Covid restrictions, as reported by Bloomberg. Gulf Energy news
       
• Gold steadied around $1,870/oz on Tuesday, hovering near its strongest levels in eight months amid a general dollar weakness.
  • The weaker-than-expected US data tempered expectations that the Federal Reserve will continue to raise interest rates aggressively.
  • But slowing down Bullion’s advance was Atlanta Fed Bank President Raphael Bostic saying  that policymakers should hike above 5% by early in the second quarter and hold them there for a long time.
  • Investors now look ahead to the US inflation report on Thursday for further clues about the Fed’s next move, as well as Fed Chair Jerome Powell’s speech later on Tuesday. Kitco metals