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Morning NOTE

GOOD MORNING

The ZAR traded in a narrow but weaker range after the release of the US jobs report on Friday.

OPENING RATES

• USDZAR 18.1500
• EURZAR 17.5600
• GBPZAR 19.9800

SOUTH AFRICA

• The Transnet strike will have serious ramifications for the country, this according to leading analysts.
  • Earlier Unions and Transnet met at the CCMA but there’s been no breakthrough in the wage talks.
  • Transnet has been offering hikes of between 3% and 4%, while unions want a more inflation-related increase.
  • The City of Cape Town’s mayoral committee member for economic growth, James Vos, said that Transnet had already lost an estimated R50 billion due to poor performance this year. EWN
     
• A fallout of the strike directly affecting the SA agricultural sector with the Berries ZA industry one of the largest affected.
  • A spokesman for the South African berry industry has called for an urgent intervention to end the ongoing strike at state-owned rail freight entity, Transnet.
  • The industry says the wage dispute must be resolved as 30 000 jobs and R3 billion in revenue hang in the balance. EWN
     
• Eskom stage 2 

GLOBAL MARKETS

Stocks:

• Global stocks remain under pressure.
• Futures for the major averages declined for four straight sessions, as fears about further monetary tightening and a potential recession gripped markets.
  • Futures contracts tied to the 3 major indexes were all trading near breakeven.
• In regular trading on Monday, the Dow and S&P 500 fell 0.32% and 0.75%, respectively, posting their fourth straight day of losses.
  • The Nasdaq Composite also dropped 1.04% to close at its lowest level in over two years.
    • JPMorgan CEO Jamie Dimon warned of a  US and global recession by the middle of 2023.
  • Meanwhile, investors digested fresh comments from Fed officials, with Vice Chair Lael Brainard advocating for caution as the effect of previous rate increases kick in.
  • Investors now look ahead to a raft of US economic data, company earnings and more appearances from Fed officials this week. Source:  CNBC

Bonds:

• The US 10 Year Note Bond Yield was 3.99 percent on Tuesday October 11, according to over-the-counter interbank yield quotes for this government bond maturity.
  • The 10Y yield spiking after the strong NFP report as well as risk aversion ahead of this week’s US PPI / FOMC Minutes & US CPI reports.
• Across the pond,
  • The UK 10Y Bond Yield was 4.46 percent on Tuesday October 11, according to over-the-counter interbank yield quotes for this government bond maturity.
    • Following a strong US jobs report , this morning the jobless rate in the UK fell to 3.5% in the three months to August of 2022.
    • It was  a new low since 1974, and below 3.6% in the previous period. Figures were also lower than market forecasts of 3.6%. 
  • Indicating more price pressures and yields likely to continue higher.  Source: Bloomberg

YESTERDAY

• The Dow fell 93 pts to 29,202
• The SP500 fell 27 to 3,612
• The Nasdaq  declined 110 to 10,542

•  Image: Trading Economics

OVERNIGHT HEADLINES

• Asian markets all lower following another Risk off session on Wall Street.
  • In Japan, the Nikkei 225 declined 2.64% to close at 26,401, tracking global markets lower, as investors fretted about tightening financial conditions.
    • In addition, increased geopolitical tensions and rising risks of a recession worldwide.
    • Technology stocks led the market lower, with traders bracing for US inflation data, FOMC minutes and more appearances from several Fed officials this week that could guide the rates outlook.
      • Meanwhile, travel stocks advanced as Japan reinstated visa-free travel to dozens of countries on Tuesday in an effort to boost tourism.
  • In Australia, the ASX 200 fell 0.34% to close at 6,645 on Tuesday, sliding for the third straight session, with energy and technology stocks leading the declines.
    • Rising global bond yields also pressured equities, as well as concerns over tightening financial conditions, heightened geopolitical tensions and rising risks of a global recession.
      • Energy stocks slumped as oil prices retreated from recent highs, with sector leaders Woodside Energy and Santos Ltd losing 2.4% 1.3%, respectively.
    • Technology stocks also extended losses on rate hike concerns, also financial, consumer and gold stocks declined as well, while clean energy-related names outperformed the markets.  Reuters

• US Dollar
  • The US dollar climbed toward 113.5 on Tuesday, rising for the fifth straight session.
    • The Greenback was lifted by expectations of further tightening by the Fed  and safe-haven demand stemming from global economic and geopolitical risks.
    • A stronger-than-expected US jobs report on Friday cemented the view that the Fed will continue to aggressively raise interest rates.
    • Traders  are looking ahead to US inflation data on Thursday for confirmation.
  • Investors also await the FOMC minutes on Wednesday and more appearances from Fed officials this week.
  • Heightened geopolitical tensions and global recession fears also spurred safe-haven demand for the dollar, with the IMF and World Bank warning about rising risks of a slowdown.
  • The dollar extended its gains against the euro and the sterling, while hitting fresh 2-½-year lows against the Aussie and Kiwi.
  • The dollar also hovered 24-year HIGHS versus the yen, prompting speculations of more intervention from Japanese authorities. FX news
     

• Brent crude oil traded near $96/bl on Tuesday after falling nearly 2% in the previous session.
  • The strong US dollar and a weakening demand outlook countered fears about tighter supplies.
    • Prices however remain elevated due to supply concerns after the OPEC+ cuts as well as an escalation in the Ukraine/Russia WAR.
  • On the demand side slowing the rise in prices were, worries of a global recession threatening energy demand.
    • This was supported after JPMorgan CEO Jamie Dimon said the US and global economy are likely to enter recession by the middle of next year.
  • The IMF and World Bank saw rising risks of a global slowdown. Gulf energy news

• Gold declined sharply and fell through the $1700/oz level.
  • Bullion prices declined towards the $1,660/oz level and in turn sliding for the 5th straight session.
    • A spike in the US dollar and rising Treasury yields keeping gold prices under pressure.
  • Last week’s US jobs report cemented a strong Dollar view.
    • Meanwhile, Fed Vice Chair Lael Brainard on Monday stressed the need for restrictive monetary policy to bring down inflation.
  • Fed decisions will be guided by incoming data as the full effect of previous rate increases become apparent.
    • Markets were also kept on edge after the IMF and World Bank warned of a growing risk of a global recession. Kitco metals report.

The WAR

• Ukrainian President Volodymyr Zelenskyy said in his nightly address on Monday that Ukraine will not be intimidated by the strikes and would make the battlefield “more painful” for Russia as a result.
  • He said urgent work was being done to repair and restore power supplies damaged during the strikes.
  • The multiple attacks by Russia came several days after a blast partially destroyed the Kerch Bridge that links the Russian mainland to Crimea, which Moscow illegally annexed in 2014.
  • Kyiv has not said whether it was responsible for the attack on the bridge, although the blast was widely seen as humiliating for Moscow and President Vladimir Putin. CNBC