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GOOD MORNING
The ZAR reversed recent losses after the US NFP report printed weaker than expected.
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SUMMARY
The Rand gained nearly 30 cents or 1.55% after the US jobs report were weaker than expected.
- The US economy adding 209k jobs vs an expected 225k, it was the first miss in 15 months
- The unemployment rate however falling to 3.6% from a previous level of 3.7%.
- And wage growth remained strong.
- The Dollar losing ground across the board with mixed market sentiment.
- However, US yields remain elevated with bond traders focussing on the Fed’s intention to hike rates again in 2023.
- The negative sentiment matched in equity markets with the SP500 lower by 1.3% to trade at 4,380.
- This week we have numerous Fed governors speaking with the standout event likely to be US INFLATION on Wednesday at 14h30.
- Markets are pricing for 3.1% vs 4% previous.
- In addition, AGOA once again at the front and centre, with the US government due to begin a review of African countries’ eligibility for participation in the African Growth and Opportunity Act (Agoa).
- President Rampahosa will also send a high level delegation to the US as well as visits to several G7 nations, who are irked by SA’s stance on Russia and its role in the war with Ukraine.
- This after, The DA has submitted a strong case to the US Trade Representative to secure South Africa’s renewal in the African Growth and Opportunity Act (AGOA).
- South Africa’s eligibility is at risk due to the government’s response to Russia’s invasion of Ukraine.
Data This week
MONDAY
- 16H00 : US FED BARR SPEECH
- 17H00 : US FED DALY SPEECH
- 17H00 : US FED MESTER SPEECH
- 18H00 : US FED BOSTIC SPEECH
TUESDAY
- 08H00 : UK UNEMPLOYMENT 3.8% UNCHANGED
- 13H00 : SA MANUFACTURING PRODUCTION YOY 1.2% EXPECTED VS 3.4%
- 15H00 : US FED BULLARD SPEECH
WEDNESDAY
- 14H30 : US INFLATION RATE YOY 3.1% vs 4.00% PREVIOUS
- 14H30 : US CORE INFLATION RATE MoM 5.3% vs 5.00% PREVIOUS
THURSDAY
- 08H00 : UK GDP MOM -0.4% EXPECTED VS 0.2% PREVIOUS
- 11H30 : SA MINING PRODUCTION YOY 3.0% EXPECTED VS 2.3% PREVIOUS
- 11H30 : SA MINING GOLD PRODUCTION YOY 26% VS 27.4% PREVIOUS
- 14H30 : US PPI MOM 0.2% EXPECTED VS -0.3% PREVIOUS
- 14H30 : US WEEKLY JOBLESS CLAIMS 249K EXPECTED VS 248K PREVIOUS
FRIDAY
- 16H00 US MICHIGAN CONSUMER SENTIMENT 65.5 EXPECTED VS 64.4 PREVIOUS
Market Movement Today:
- The Rand opening sharply stronger following a weaker than excepted US NFP report.
- After the bumper ADP report, markets were surprised by the NFP report.
- The US jobs report at 209k vs 225k expected.
- Locally a risk to the Rand will be around the AGOA agreement.
- President Rampahosa will send a high level delegation to the US as well as visits to several G7 nations, who are irked by SA’s stance on Russia and its role in the war with Ukraine.
- South Africa’s eligibility is at risk due to the government’s response to Russia’s invasion of Ukraine.
- However, the Dollar retreating even though yields remain elevated.
- This week attention turns to US inflation, that will either confirm or reverse the FED’s policy stance.
- The Rand benefitting from the weaker US jobs report, with the Dollar firmly on the backfoot
- Technically, a break of 18.7800 opens up 18.6500, likewise through 18.9500 opens up a move towards 19.1500 .
- Trade : SELL USDZAR on rallies (until Wednesday’s US CPI report)
Markets this morning
- USDZAR 18.8600
- DOLLAR 102.40
- EURUSD 1.0955
- SP500 4,386
- GOLD 1925
- US10YT 4.06%
Expected Ranges:
- USDZAR : Expect a range 18.7300-19.0300
- Importers : 18.8300-18.7300
- Exporters : 18.9300-19.0300
- EURZAR : Expect a range of 20.5200-20.8500
- Importers : 20.6300-20.5200
- Exporters : 20.7400-20.8500
- GBPZAR : Expect a range of 24.0300-24.3600
- Importers : 24.1400-24.0300
- Exporters : 24.2500-24.3600
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OPENING RATES
- USDZAR : 18.8600
- EURZAR : 20.6600
- GBPZAR : 24.1600
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SOUTH AFRICA
COLD FRONT
- Gauteng and North-West residents should prepare for freezing weather conditions from Sunday evening.
- The South African Weather Service (SAWS) has issued a warning alerting residents to expect the cold conditions to carry into Monday.
- Gauteng experiencing snowfall in certain areas but the weather service saying it wont be disruptive. Source EWN
VAN REENENS PASS
- The N3 Toll Concession said the road is temporarily closed at Van Reenen’s Pass.
- This after six trucks were set alight in the early hours of Sunday morning.
- At around 1 am, arsonists torched the trucks and then fled the scene.
- Firefighting teams managed to douse the flames and police have secured the area.
- Clean-up operations are underway.
- However, traffic heading north to Johannesburg is being stopped at Tugela Plaza, while southbound traffic is heavily backed up at the top of Van Reenen’s Pass.
- The N3 Toll Concession has advised motorists to delay their trips until the route is open again. Source : EWN
GLOBAL MARKETS
Stocks
- US stock futures were mixed on Monday following a downbeat session on Wall Street Friday.
- Market participants braced for a slew of US inflation data on Wednesday and Thursday.
- Investors are also awaiting speeches from several Fed officials this week, including Minneapolis President Neel Kashkari, Cleveland President Loretta Mester, San Francisco President Mary Daly, and Governor Christopher Waller.
- The Fed is also to publish its Beige Book on Wednesday.
- Also, Treasury Secretary Yellen said over the weekend that the Biden administration is still not ruling out the risk of a recession in the US, even amid a strong labour market.
- Regarding China, she warned that Washington and its allies will fight back against “unfair economic practices” while calling for market reforms in the world’s second-biggest economy. Source : Reuters
Bonds
- US 10 Year Note Bond Yield was 4.06% on Monday July 10, according to over-the-counter interbank yield quotes for this government bond maturity.
- Yields remain elevated after the latest FOMC minutes have revealed the commitment of US officials to maintaining a hawkish stance.
- Fed governors citing persistent inflation levels well above the 2% target and a tight labour market.
- In the UK, the 10-year UK gilt yield has surged above the 4.6% threshold, the highest level since July 2008, due to the anticipation of an extended period of elevated interest rates.
- Despite concerns about a potential UK recession, the Bank of England is expected to continue its path of raising interest rates as inflation remains well above the 2% target.
- In a surprising move, the BoE increased its main interest rate by 50bps to 5% last month, with Governor Andrew Bailey emphasizing the sustained nature of inflation.
- Financial markets are currently anticipating that interest rates will peak at 6.5% by March. Source: Bloomberg
On Friday
- DOW -187 to 33,734
- SP500 -12 to 4,398
- NASDAQ -18 to 13,660
 image: Trading economics
OVERNIGHT HEADLINES
Asian markets
Eastern markets lower following a spike in US yields ahead of this week’s US inflation report.
- In Japan, the Nikkei 225 fell 1.17% to close at 32,388.
- The index sliding for the fourth straight session and taking cues from a weak lead on Wall Street.
- New York lower after strong US jobs data fuelled fears that the Federal Reserve will tighten policy further in July.
- Investors also digested data showing household spending in Japan declined more than expected in May.
- Technology and financial stocks led the decline.
- In China, markets rebounded following more weak Chinese economic data.
- Traders citing, the poor data likely to lead to more stimulus from the PBoC.
- Yellen in China : Signs of improvement in Sino-US ties also lifted sentiment after US Treasury Secretary Yellen said her meeting with Chinese officials during her China trip last week was productive.
- Meantime, bets built that a regulatory crackdown on the fintech sector had ended after the PBoC hit Ant Group with a CNY 7.12 billion fine Friday. Source : Reuters
Energy
Oil prices remain well supported on supply constraints as well as news on US SPR buying.
- US WTI crude futures higher around the $73.4 a barrel on Monday after gaining more than 4% last week.
- Supply cuts from OPEC+ outweighing demand concerns about a global economic slowdown.
- Fresh data showed factory-gate deflation in top crude importer China deepened in June, while consumer prices were unchanged as the post-COVID recovery faltered.
- In the US, still-strong wage growth and a slight drop in unemployment will likely keep up the Fed to raise interest rates later this month.
- The US Administration announced that it plans to purchase about 6 million barrels of oil for the Strategic Petroleum Reserve. Source Gulf News
Metals
Gold prices higher after the NFP report printed well below the US ADP report.
- The Yellow metal gaining nearly $15/oz to open at $1925/oz after the NFP release.
- Enormous disparity in the two jobs reports released last week.
- ADP was higher than expected and NFP was lower than expected.
- However, the softer employment numbers most likely will not be enough to change the resolve of the Federal Reserve as they consider raising rates at the next FOMC meeting.
- In addition, the rapid rise in wages adds to inflationary pressures.
- The lower numbers did not change market sentiment as to whether or not the Federal Reserve would implement a rate hike of ¼% at the end of the month. Source : Kitco
Currencies
The Dollar on the backfoot following Friday’s lower than expected NFP report.
- The US dollar index remained below 103 on Monday, as traders recalculated over how much further US interest rate would be needed after US jobs data posted the smallest rise in 2-1/2 years.
- The US economy added 209,000 jobs last month, data on Friday showed, missing market expectations for the first time in 15 months.
- Meanwhile, the jobless rate fell slightly to 3.6%, while wage growth was strong with earnings rising 4.4% over the past twelve months.
- Investors now anticipated a slew of US inflation data on Wednesday and Thursday and speeches from several Federal Reserve officials this week.
- But markets continue to price for higher rates with the 10YT at 4.07%. Source : Trading economics
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