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GOOD MORNING
The ZAR continued its recovery on the back of lower US yields after US inflation expectations printed lower than expected.
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SUMMARY
The Rand opening at 18.7000 after another “bearish” day for the Dollar.
- US consumer expectations inflation data printed lower than expected with consumers expecting the lower trend in inflation to continue.
- Yields declined, with the US10YT drifting below 4% to 3.97%.
- The Dollar retreating on the back of a risk asset rebound. The SP500, Gold as well as Euro FX and Pound FX all gaining at the expense of the Dollar.
- Markets firmly trading against the views of the FED, who remain insistent on their hiking plans.
- In a speech last night the Fed governor of Cleveland, Loretta Mester, said she voted for a hike in June.
- Adding that most governors believe rates are still too accommodative to bring inflation back down to 2%.
- The Fed left the target for the funds rate unchanged at 5%-5.25% in June, but after the FOMC decision,
- Fed Chair, Powell, has reinforced several times the need to raise rates further this year. source: Federal Reserve
- Markets however focussed on Wednesday’s US CPI data where 3.1% YOY CPI is priced in vs the 4.00% previous.
- A lower than expected number likely to support the RISK ON trade
- and anything higher will be seen as a disappointment and we can expect a rebound in the Dollar.
- The ZAR however well supported in early trading with traders ignoring renewed Eskom load shedding as well as risks associated with the AGOA trade agreement
Data This week
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 continuing its advance and opening stronger following a lower than expected US consumer inflation expectations report.
- Traders continue to look for clues on future rate hikes by the FED and appear to be focussing on dovish news only.
- US treasury yields lower after the 10YT dropped below 4%.
- The Dollar retreating sharply with largest gainers the Yen, Euro and Pound.
- In addition the entire Risk complex trading higher this morning, with SP500 and Gold both holding onto recent gains.
- The local unit opening at 18.7200, before early gains to 18.6700.
- Consensus are for stronger ZAR with caution advised ahead of tomorrows US CPI data.
- Technically, A break of 18.7000 opens up 18.6000 , likewise through 18.9500 opens up a move towards 19.1500.
- We remind the reader that local risk to the Rand will be around the AGOA agreement.
- After Rampahosa diplomatic mission to save the agreement with no change in SA’s stance vs Russia.
- South Africa’s eligibility is at risk due to the government’s response to Russia’s invasion of Ukraine.
- Trade : SELL USDZAR on rallies (until Wednesday’s US CPI report)
Markets this morning
- USDZAR 18.7200
- DOLLAR 101.74
- EURUSD 1.1010
- SP500 4,420
- GOLD 1933
- US10YT 3.99%
Expected Ranges:
- USDZAR : Expect a range 18.6000-18.9000
- Importers : 18.7000-18.6000
- Exporters : 18.8000-18.9000
- EURZAR : Expect a range of 20.5100-20.7800
- Importers : 20.6000-20.5100
- Exporters : 20.6900-20.7800
- GBPZAR : Expect a range of 23.9800-24.2800
- Importers : 24.0800-23.9800
- Exporters : 24.1800-24.2800
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OPENING RATES
- USDZAR : 18.7200
- EURZAR : 20.6200
- GBPZAR : 24.1500
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SOUTH AFRICA
WATER CRISES
- Rand Water’s scheduled maintenance means no water for Jhb residents from this coming Tuesday night to Friday morning.
- Johannesburg Water says that this shutdown is necessary to complete maintenance and upgrade requirements at Rand Water’s Eikenhof pump station.
- As Rand Water supplies water to Johannesburg Water reservoirs, many customers who rely on those systems will have no water supply during the shutdown.
- The times scheduled to take place from next week Tuesday night (7pm) to Friday morning (5am), (11 – 14 July), and possibly a few days after as the system restores itself. |Source : Daily Maverik
COLD FRONT
- Parts of Joburg experienced snow on Monday evening, but none is expected on Tuesday and later in the week, said the SA Weather Service.
- The service said parts of Bethlehem in the Free State and Vryburg in the North West would experience the lowest temperatures on Tuesday, at -6 degrees Celsius.
- Emergency services in Ekurhuleni and the Eastern Cape said they didn’t receive reports of incidents related to the weather conditions on Monday.| Source News 24
VAN REENENS PASS
- Another two trucks have been set alight, this time, on the N2 highway in Empangeni.
- KwaZulu-Natal police have confirmed that the latest incident took place on Monday night, making it the third attack on trucks in just two days.
- On Sunday morning, six trucks with goods were targeted and set alight on the N3 in Van Reenen’s Pass.
- Hours later another five trucks were torched on the N4 in Mpumalanga.
- Analysts are calling the events Economic sabotage, due to the loss of goods being transported.| Source EWN
GLOBAL MARKETS
Stocks
Global shares higher across the board.
- On Monday, the Dow jumped 0.62%, the S&P 500 gained 0.24% and the Nasdaq Composite rose 0.18%.
- Seven out of the 11 S&P sectors finished higher, led to the upside by industrials, health and energy.
- US stock futures held steady on Tuesday after the major averages snapped a three-day decline during Monday’s regular session.
- Futures contracts tied to the three major indexes were all trading near breakeven.
- Traders now await consumer inflation data on Wednesday and producer inflation figures on Thursday for fresh clues on the economy and the path for interest rates.
- Major companies are also slated to report earnings this week including JPMorgan, BlackRock, PepsiCo, Delta Air and UnitedHealth. Source : Reuters
Bonds
Yields trending lower ahead of Wednesday’s inflation data.
- The yield on the US 10-year Treasury note fell below 4% to 3.96% as markets continued to assess the latest data for hints on the extent of remaining tightening by the Federal Reserve.
- The CPI report due on Wednesday and the PPI on Thursday will be in the spotlight this week.
- On Friday, the payrolls report showed the economy was robust and recent evidence suggest that the US labour market remains tight.
- A favourable backdrop for the Federal Reserve to continue raising interest rates to curb stubborn inflation.
- The central bank is expected to raise its funds rate by 25bps in its upcoming meeting this month before holding the terminal rate of 5.5% until May of 2024. Source : Bloomberg
On Friday
- DOW +209 to 33,944
- SP500 +10 to 4,409
- NASDAQ +24 to 13,685
 image: Trading economics
OVERNIGHT HEADLINES
Asian markets
Eastern markets higher following a drop in US yields and a strong close on Wall Street.
- In Japan, the Nikkei 225 Index rose 0.04% to close at 32,204, as gains in the technology sector were offset by losses in consumer, healthcare and financial stocks.
- Investors also remained cautious ahead of key US inflation data this week that could influence the outlook for Federal Reserve monetary policy.
- In Australia, the ASX 200 Index jumped 1.5% to close at 7,109, rebounding from three-month lows, with mining and technology stocks leading the advance.
- Australian shares also tracked gains on Wall Street overnight as risk sentiment improved ahead of the release of key US inflation data this week.
- Moreover, investors digested latest data showing domestic consumer and business confidence improved marginally.
- Mining stocks climbed on stronger metals prices. Source : Reuters
Energy
Oil prices remain well supported on supply cuts by OPEC+
- Brent crude futures climbed toward $78/bl on Tuesday, recouping some losses from the previous session and hovering close to their highest levels in two months.
- Traders continue to track supply cuts by top crude exporters Saudi Arabia and Russia are expected to tighten the market.
- Last week, Saudi Arabia said it would extend its 1 million barrels-per-day cut to August, while Russia said it would cut oil exports by 500,000 bpd next month.
- In the US, authorities announced that they plan to purchase about 6 million barrels of oil for the Strategic Petroleum Reserve, with receipts scheduled for October and November 2023.
- Meanwhile, investors remain cautious ahead of key US inflation data and Chinese trade figures this week that could guide the demand outlook.
- The prospect of further interest rate hikes from the Federal Reserve also continued to weigh on market sentiment. Source Gulf News
Metals
Gold prices higher after the drop in US yields and the Dollar supported the Yellow metal.
- Gold rose toward $1,930/oz on Tuesday, gaining another $5/oz
- Traders speculated that the end of the current monetary policy tightening cycle is getting close, despite fed governors stating they will likely raise interest rates further to bring down inflation.
- Markets are currently priced for a 25 basis point rate increase from the Fed this month, while doubts persist on the need for further hikes.
- US consumer inflation expectations for the year ahead also fell for a third consecutive month to 3.8% in June 2023 from 4.1% in May, the lowest in over two years.
- Investors now look ahead to US consumer inflation data on Wednesday and producer inflation numbers on Thursday for more clues on the economy and the path for interest rates. Source : Kitco
Currencies
The Dollar slide continued after inflation expectations surprised to the downside.
- The US dollar index fell to around 101.8 on Tuesday, hitting its weakest levels in two months as several US central bank officials said they will likely raise interest rates further to bring down inflation.
- Yields declining after US Consumer inflation expectations printed at 3.8% vs 4.1% previous.
- Markets are currently priced for a 25 basis point rate increase this month, while doubts persist on the need for further hikes.
- Investors now look ahead to US consumer inflation data on Wednesday and producer inflation numbers on Thursday for more clues on the economy and the path for interest rates. source :Trading economics
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