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Morning NOTE

GOOD MORNING

The ZAR strengthened  sharply on the back of improved risk sentiment ahead of today’s key US CPI report.

OPENING RATES

• USDZAR 17.0800
• EURZAR 17.3300
• GBPZAR 20.0200

SOUTH AFRICA   

• Eskom has announced it will be ramping-up power cuts, with stage 4 set to kick in at 10am on Tuesday morning.
  • The power utility said that a sudden outage of three Kendal power station units had forced them to increase the level of rolling power cuts.
  • This round of power cuts will run until 5am on Thursday morning.
  • The power utility said that it would release more details in due course.
  • News have since emerged that 42 of its electricity generation units had tripped over the past week.  EWN
• Following the break of the mining dam wall, President Cyril Ramaphosa took to the area on Monday following an accident at a local mine that caused damage to an estimated 100 homes on Sunday.
  • He said, the government will provide extensive support to the people of Jagersfontein.
  • Details have since emerged that, the Free State government and the Mineral Resources Department allegedly turned a blind eye to warnings of potential danger and instability at the Jagersfontein mine. IOL
• After splitting from ABSA , Barclays Plc announced it is expanding private-banking services in Africa, looking to target the continent’s $2 trillion high-net worth market.
  • The British lender has hired nine bankers from Credit Suisse Group AG based in mainly Dubai, London and Zurich after agreeing a deal to handle clients referred by the Swiss rival.
  • This will be done through organic growth and the referral agreement we have with Credit Suisse due to a partnership arrangement.  Moneyweb
• The yield on SA’s R186 bond, which matures in December 2026, declined 6 basis points (bps) on Monday to close at 8.76%, equalling the level on August 25, the lowest close since August 17. 
  • On the back of a stronger Rand, SA’s benchmark bond yields fell to multiweek lows.
  • Market concern that a possible recession in the US and Europe might further upend a struggling local economy appeared to outweigh fears of accelerating global inflation, which is making central banks increasingly hawkish. Business day

GLOBAL MARKETS

Stocks:

• In trading on Monday, the Dow added 0.71%, the S&P 500 climbed 1.06% and the tech-heavy Nasdaq jumped 1.27%.
  • All three major markets rallied for the 4th straight session as speculations for peak inflation sparked a risk rally.
  • However some analysts pushed back that recent gains could just be another bear market bounce.
• This morning US stock futures edged higher as investors looked ahead to the August CPI report due for release later in the global day.
  • Traders focussing on the number as it will be one of the last pieces of data the Fed will assess before their Sept. 20-21 policy meeting.
  • Dow futures rose 0.1%, while S&P 500 and Nasdaq 100 futures each gained about 0.2%.
  • The August CPI data is expected to come in at 8.1% YOY , slowing for the second straight month following an 8.5% increase in July.

Bonds:

• The US 10-year yield flat lined around 3.33%, as investors reassessed the outlook for monetary policy as the Fed seeks to rein in soaring inflation by hiking interest rates further even as growth slows.
  • While the US economy is slowing and some industries such as housing show signs of weakness, the labour market has remained robust and quieted fears of a recession.
  • Markets have upped their bets and 75 basis-point interest rate hike in September looks like a certainty.

Germany

• The German 10-year yield held close to 1.7%, not far from an over 8-year high of 1.75% touched in June.
  • Reuters reported that ECB officials see a growing risk that they will have to raise their key interest rate to 2% or more despite a likely recession.
  • Meanwhile, the central bank sharply raised its inflation projections to an average of 8.1% this year and 5.5% in 2023.
  • Earlier, ECB President Lagarde stated that inflation expectations consistently above target warrant extra monitoring.

YESTERDAY

• The Dow gained 229 to close at 32,381
• The SP500 gained 43 points to close at 4,110
• The Nasdaq gained 154 to close at 12,266

• Image: Trading Economics

OVERNIGHT HEADLINES

• Asian Markets all higher on the back of a positive close on Wall Street.
  • In Japan, the Nikkei 225 rose 0.25% to close at 28,615 after tracking an overnight rally on Wall Street.
    • Meanwhile, markets remained cautious ahead of US CPI data that could influence the Federal Reserve’s tightening plans and the trajectory of global growth.
    • Investors also assessed data showing Japan’s producer prices increased steadily in August, while business sentiment improved in the third quarter.
  • In Australia, the ASX 200 rose 0.65% to close at 7,010 on Tuesday, rising for the 4th straight session and erasing losses from earlier this month.
    • Sentiment was also lifted by data showing Australia’s consumer sentiment rose for the first time since November 2021 .
    • Meanwhile, investors remained cautious ahead of US inflation data that could influence the Federal Reserve’s tightening plans and the trajectory of global growth.  Reuters
       
• Brent crude oil futures fell toward $93/bl on Tuesday to snap a 3-day winning streak.
  • Traders citing caution ahead of US inflation data that could influence the Federal Reserve’s tightening plans and the trajectory of global growth.
  • Demand concerns driven by top crude importer China’s anti-virus restrictions and a deepening energy crisis in Europe also added to the bearish view.
  • However, Brent prices rallied about 7% in the past three days and rebounded from over seven-month lows
  • A weaker dollar highly supportive as investors await OPEC’s monthly report on its near-term market outlook due for release later on Tuesday. Gulf energy news
     
• Gold prices steady at $1,720/oz after being rejected around the $1,735 level in the previous session.
  • Traders waiting for the US inflation report, the last ahead of the Federal Reserve’s Sept. 20-21 policy meeting.
  • The headline inflation rate in the US is expected to slow on an annual basis from 8.5% in July to 8.1% in August.
  • Speculations that inflation has already peaked supported gold prices in recent sessions as it also raises expectations for less aggressive Fed hikes after the September meeting. Kitco metals
     
• The US dollar steadied around 108.2 in subdued trade on Tuesday, as investors prepared for US CPI.
  • The report to shed more light on how aggressive the Federal Reserve will need to be in raising interest rates moving forward.
  • The headline inflation rate in the US is expected to slow on an annual basis from 8.5% in July to 8.1% in August, and a surprise on either side would likely drive further currency volatility.
  • However, the US dollar lost nearly 2% in the past four sessions amid speculations that inflation has already peaked, sparking a rally in risk assets while pressuring the greenback.
  • Hawkish remarks from European Central Bank officials saying that rates would need to increase further if high inflation persists also weighed on the dollar. FX news