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Morning NOTE

10 October 2022

GOOD MORNING

The ZAR weakened on the back of a stronger than expected US jobs report resulting in global Risk Off.

SUMMARY

  • The Rand weakened after the US Non-farm payrolls report, surprised to the upside with payrolls printing at 263k vs 250k expected.
    • The data supporting the FED ‘s narrative that rates are nowhere near to being “restrictive” and that the FOMC remains committed to bringing inflation under control i.e. back to 2% 
    • The data sparking a global sell-off in risk assets that included all asset classes i.e. Stocks, Bonds, EMFX as well as Crypto.
       
  • The US10YT reaching 3.88%, the Dollar Index 112.87, while the SP500 also declined to reach 3625.
    • The ZAR losing 1.4% to trade at 18.1800, following a Friday start at 17.9600.
    • This week we are once again the mercy of the data genie, with lots to digest,
    • We also have the all important FOMC FED MINUTES on WEDNESDAY  20H00 , this will once again give insight into the discussions by the FOMC members.
    • This is followed by KEY US CPI at 14h30 on Thursday.

Significant Market Data

Tuesday

  • 08H00 :  UK UNEMPLOYMENT AUG  3.6% VS 3.6% PREVIOYS
  • 13h00 :  SA MANUFACTURING YOY 2% EXPECTED VS 3.7% PREVIOUS

Wednesday

  • 14H30 : US PPI YOY 8.3% EXPECTED VS 8.7% PREVIOUS
  • 14H30 : US CORE PPI YOY 7.3% EXPECTED VS 7.3% PREVIOUS
  • 15H30:  ECB PRESIDENT LAGARDE SPEAKS
  • 20H00 : US FOMC MINUTES FROM SEPTEMBER MEETING ***

Thursday

  • 11h30 : SA GOLD PRODUCTION -18% YOY EXPECTED VS -19.7% PREVIOUS
  • 11h30 : SA MINING  PRODUCTION -8.7% YOY EXPECTED VS -8.4% PREVIOUS
     

    • 14H30 : US CPI YOY 8.1% EXPECTED VS 8.3% PREVIOUS ***
    • 14H30 : US CORE PPI YOY 6.5% EXPECTED VS 6.3% PREVIOUS

*** = HIGH RISK

Friday

  • 14h30 : US RETAIL SALES 8% YOY EXPECTED VS 9.1% PREVIOUS 

Today

  • After an aggressive sell-off in risk assets driving the USDZAR to 18.1800, we expect some early session profit taking.
    • Short term exporters likely to take advantage of elevated levels, resulting in “morning session” ZAR gains.
    • A move towards the Asia low of 18.0700, likely to result in Dollar buying, as the Dollar remains on the front foot.
    • NB: we opening near the top end of the range, showing a market that maintains direction conviction.
    • As US yields continue to rise following Friday’s jobs report it shows the FED will likely continue on its rate path.
    • In addition, we have a busy week on the data front and the “line of least resistance” i.e. TREND calls for a weaker ZAR.
    • As we head into a busy data week, we encourage clients to exact prudent risk management and hedge at least 50% of their exposures.
    • The data will be closely watched and US CPI will be the key driver this week.
    • It will affect yields and so determine the next path of the ZAR
       
  • For today though, the trade remains
  • BUY USDZAR ON DIPS.

Expected Ranges

  • USDZAR :  Expect a range 17.9700-18.2800
    • Importers 18.0700-19.9700
    • Exporters 18.1800-18.2800 
       
  • EURZAR :  Expect a range of 17.4900-17.7900
    • Importers 17.5900-17.4900
    • Exporters 17.6900-17.7900 
       
  • GBPZAR :  Expect a range of 19.8500-20.3000
    • Importers 20.0000-19.8500
    • Exporters  20.1500-20.3000

OPENING RATES

  • USDZAR 18.1600
  • EURZAR 17.6700
  • GBPZAR 20.1300

SOUTH AFRICA

  • South Africa didn’t have a good week.
    • We saw the continuation of the worst bout of load shedding since it started in 2008 as well as the taps running dry in many suburbs of Johannesburg.
    • This was followed by an illegal strike at Transnet, which brought activities at several ports to a virtual standstill.
    • The events will cause further deterioration in already record-low business, consumer and investor confidence, which will also flow to the economy and companies. Money web
       
  • Eskom says load shedding will return from Monday until Wednesday.
    • The power utility says Stage 2 power cuts will kick in from 4 pm on Monday to replenish emergency generation reserves and boost generation capacity.
    • This follows a short weekend break that saw rolling power cuts suspended from Saturday morning. NEWS24
       
  • Another nationwide march/strike is being organised by COSATU.
    • On Friday, Cosatu is expected to embark on a nationwide march on Friday in commemoration of World Day for Decent Work.
    • The federation is demanding that government and employers respect labour laws and take seriously the calls for decent work.
    • The workers will gather in various cities across the country, with the hopes of having their voices heard. EWN
       
  • Another heatwave can be expected in Gauteng from Wednesday.
    • That’s according to early forecasts.
    • SA Weather has issued an advisory after Gauteng battled sweltering temperatures last week .
    • In addition Johannesburg residents were teased with rumbling skies, but no rain on Friday and Saturday. IOL

 

GLOBAL MARKETS

  • US stock futures extended losses on Monday after stronger-than-expected US NFP data caused another equity selloff during Friday’s session.
    • In regular trading on Friday, the Dow dropped 2.11%, the S&P 500 tumbled 2.8% and the Nasdaq Composite slumped 3.8%, with US stocks heading back toward their lowest levels in over two years.
      • Those moves came as solid US jobs data and hawkish remarks from US policymakers extinguished hopes for any dovish pivot from the Federal Reserve.
      • Investors now look ahead to the monthly CPI report on Thursday amid fears that higher energy prices could fuel inflationary pressures.
        • Major US companies are also set to release quarterly earnings this week including JPMorgan, Morgan Stanley, Citibank 

Bonds:

  • The US 10-year yield rose further toward 3.9%, approaching a 14-year peak of 4% hit on September 27th.
    • The jump in yields after the better-than-expected employment report reinforced market bets the FED will maintain its aggressive tightening path to tame inflation.
    • Also, Cleveland Fed Bank President Loretta Mester said the Fed has to be “singularly focused on inflation,”, even at the cost of higher unemployment and weaker growth.

ON FRIDAY

  • The Dow declined 630 points to 29,296
  • The SP500 fell 104 points to 3,639 
  • The Nasdaq  fell 420 to 10,652

OVERNIGHT HEADLINES

  • Asian markets all trading lower across the board following Friday’s bloodbath on Wall street after the NFP report.
    • In Japan, the Nikkei 225 declined 0.88% to close at 27,116, ending a 4-day advance, as US Federal Reserve officials signalled determination in bringing down inflation.
      • The news after US jobs showed another robust month as the world’s largest economy continues to add jobs.
      • Traders fearing the report will allow for more rate hikes that markets fear could tip the economy into recession.
    • In Australia, the ASX200 fell 1.4% to close at 6,668, ASX 200 Index dropped 1.4% to close at 6,668 on Monday, falling for the second straight session and tracking a sharp selloff on Wall Street.
      • After solid US jobs data extinguished hopes for a dovish pivot from the US Federal Reserve.
      • Investors are also preparing for US inflation data this week that could guide the US central bank’s monetary decision in November. Reuters
  • The US dollar rebounded to trade near 113 on Monday after rising for 3 straight sessions.
    • The Buck was supported by stronger-than-expected US jobs data which increased bets that the FED will press ahead with its aggressive monetary tightening plans.
    •  Last week, a chorus of Fed officials also sounded unequivocally committed to bringing down inflation with more rate hikes, even at the cost of higher unemployment and weaker growth.
    • Investors now look ahead to US inflation data on Thursday that is expected to show still elevated price pressures.
    • Elsewhere, the dollar remains supported by safe-haven demand amid global recession fears, and heightened geopolitical tensions.
  • Crude oil WTI traded at  $92/bl.
    • Crude remains well bid following last week’s large OPEC+ output cuts.
    • For now the Demand problem pushed aside by OPEC+ that threatens to squeeze supply further ahead of winter.
    • The US oil benchmark rallied nearly 17% last week after OPEC+ agreed to cut production by 2 million barrels per day or about 2% of global supply from November.
    • It would be the biggest output cut since the start of the pandemic.
    • Adding to supply concerns, Russia reiterated its warning last week that it won’t sell oil to countries that support the US-led plan to impose a price cap on Russian oil. Gulf energy news
       
  • Gold prices declined below $1,700/oz after robust US jobs data cemented expectations that the US Federal Reserve will continue raising interest rates aggressively to tame surging inflation.
    • The US JOBS s report showed that the US economy added 263,000 jobs in September, exceeding expectations for a 250,000 gain.
    • In addition, the unemployment rate fell to a historic low of 3.5%.
    • New York Fed Bank President John Williams also said on Friday that rates need to rise to around 4.5% over time depending on how the economy performs.
    • The dollar and Treasury yields extended their winning streaks after the data release, pressuring gold prices.  Kitco metals

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