View this email in your browser

Morning NOTE

GOOD MORNING

The ZAR continued to strengthen and traded below R18.50/$ ahead of today’s key US CPI data as well as US FOMC tomorrow.

OPENING RATES

• USDZAR : 18.7000
• EURZAR : 20.3200
• GBPZAR : 23.5300

GLOBAL MARKETS

Stocks

• US stock futures held steady on Tuesday as investors look ahead to the May inflation report due later in the global day and the Federal Reserve’s interest rate decision on Wednesday.
  • Futures contracts tied to the three major indexes drifted flat to slightly positive.
  • In extended trading, Oracle jumped 4% after exceeding expectations for the top and bottom lines amid solid gains in cloud revenue.
     
• In regular trading on Monday, the Dow rose 0.56%, the S&P 500 gained 0.93% and the Nasdaq Composite rallied 1.53%.
  • Those moves came as investors were hopeful that inflationary pressures would show further signs of easing, supporting the case for a pause in the Fed’s interest rate hikes this week.
  • The US inflation rate is forecasted to slow to 4.1% in May from 4.9% in April, the lowest since March 2021, while the core gauge may decelerate to 5.2% from 5.5%. BLOOMBERG

Bonds

• The yield on the US 10-year Treasury note edged up to 3.73%, as investors await the Federal Reserve’s announcement on Wednesday.
  • Most market participants expect the US central bank to leave interest rates unchanged at the current levels;
    • BUT  there is a chance of a rate hike depending on the CPI reading and after surprise moves in Australia and Canada last week.
    • The US inflation rate is forecasted to fall 4.1% in May, the lowest since March 2021, from 4.9% in April while the core gauge may decelerate to 5.2% from 5.5%.
    • Meanwhile, the ECB is expected to raise rates by 25 basis points on Thursday.
    • It was after a surprise hawkish move from both the Bank of Canada and the Reserve Bank of Australia last week. CNBC

Yesterday

• DOW +189 to 34,066
• SP500 +40 at 4,328
• NASDAQ +202 to 13,461

  image: Trading economics

OVERNIGHT HEADLINES

The US dollar

• The dollar index steadied around 103.5 on Tuesday as investors prepared for the May inflation report due later day.
  • Traders also braced for the Federal Reserve’s interest rate decision on Wednesday.
  • The US inflation rate is forecasted to slow from 4.9% in April to 4.1% in May, the lowest since March 2021, while the core gauge may decelerate from 5.5% to 5.2%.
  • That would support the case for the Fed to pause its tightening cycle at the upcoming meeting, though markets remain divided on what the central bank’s next steps are from July.
  • Externally, investors also braced for monetary policy decisions from the European Central Bank and the Bank of Japan.
  • The ECB is widely expected to raise its policy rate by 25 basis points this week and again in July to combat sticky inflation.
  • On the other hand, the BOJ is anticipated to maintain its ultra-loose monetary policy this week as continued economic recovery was countered by slowing global growth. FX NEWS

Asian markets

• In Japan, the Nikkei 225 Index rallied 1.8% to close at 33,018 while the broader Topix Index jumped 1.16% to 2,265 on Tuesday, rising for the third consecutive session and hitting their highest levels since 1990.
  • Japanese shares also tracked gains on Wall Street overnight as investors were hopeful that inflationary pressures would show further signs of easing, supporting the case for a pause in the Federal Reserve’s interest rate hikes this week.
    • Domestically, investors cheered data showing Japan’s business sentiment improved in the second quarter, while the outlook for the third and fourth quarters pointed to further upswings.
    • Notable gains were seen from index heavyweights such as SoftBank Group (5.3%), Toyota Motor (5.1%), Advantest (4.8%), Tokyo Electron (5%) and Mitsubishi Corp (2.9%).
       
• In China, the Shanghai Composite edged up 0.15% to close at 3,234 while the Shenzhen Component gained 0.76% to 10,956 on Tuesday.
  • The rise  from recent lows after the People’s Bank of China unexpectedly slashed the its seven-day reverse repurchase rate by 10 basis points to 1.9% to boost liquidity in the financial system, the first such move since August last year.
    • Markets have been speculating that China’s central bank would need to introduce additional stimulus to counter a sluggish economic recovery, including a possible cut to banks’ reserve requirement ratio. REUTERS

Crude oil

• US WTI crude futures held below $68/BL on Tuesday after diving more than 4% in the previous session.
  • concerns over a potential US recession, weakening Chinese demand and rising Russian supply outweighed Saudi Arabia’s plans to reduce output further.
  • Softer-than-expected economic data in the US and China fuelled demand concerns in the world’s two biggest oil consumers.
  • Investors also fretted about the prospect of further interest rate hikes from major central banks that could weigh on the global economy and dampen overall demand.
  • On the supply side, Russian oil exports to China and India rose to record levels in May, offsetting Saudi Arabia’s intention to reduce output further in July.
  • Goldman Sachs has downgraded its year-end price outlook for WTI crude again to $81 from $89, and that of Brent crude to $86 from $95, citing rising supply and waning demand. GULF ENERGY NEWS

Gold

• Gold held below $1,960 an ounce in subdued trade on Tuesday, as caution dominated sentiment ahead of monetary policy meetings scheduled this week for the Federal Reserve, the European Central Bank and the Bank of Japan.
  • Investors also braced for US inflation data on due out on Tuesday that could influence the outlook for the economy and interest rates.
  • Markets see an over 70% chance that the Fed will keep its benchmark interest rate unchanged on Wednesday, while remaining split on whether it would hold rates steady or resume its policy tightening in July.
  • The BOJ is also expected to maintain its ultra-loose monetary policy on Friday, while the ECB is widely anticipated to raise its policy rate by 25 basis points this week and again in July to combat sticky inflation. KITCO METALS