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Morning NOTE

GOOD MORNING

The ZAR strengthened 1.3% ahead of today’s crucial US CPI report.

OPENING RATES

• USDZAR 17.8400
• EURZAR 19.1600
• GBPZAR 21.6700

SOUTH AFRICA

SA WEATHER

• South Africa’s countrywide flooding was on Monday declared a national state of disaster in terms of the Disaster Management Act.
  • This comes after heavy downpours severely affected seven of the country’s nine provinces of late.
  • The Presidency brought this to light as inclement weather continued in parts of the country.
  • It would allow for a coordinated response to the impact of floods that are affecting Mpumalanga, the Eastern Cape, Gauteng, KwaZulu-Natal, Limpopo, the Northern Cape, and North West”. EWN
     
• The DA, after months of calling on President Cyril Ramaphosa to consider declaring a state of disaster over the power crisis, is now headed to the courts.
  • On Thursday night, Ramaphosa announced the national state of disaster would be implemented with immediate effect during his State of the Nation Address (Sona).
  • The DA had previously called for a ring-fenced state of disaster to curb rolling power cuts.
  • BUT In a surprise move, the DA said it feared a looting spree similar to the one seen during the COVID-19 pandemic, despite the party previously calling for the energy crisis to be declared a disaster. EWN
     
• President Cyril Ramaphosa condemned the alleged intimidation by a group of around 100 protesters who gathered outside the private home of KwaZulu-Natal Premier Nomusa Dube-Ncube on Friday evening.
  • Welcoming the investigation into the incident, Ramaphosa said the group made their way to the premier’s private home, under cover of darkness, to intimidate the family. NEWS24

Eskom

• A tender of R96 million issued by Eskom for pipeline maintenance at its Matla power station in Kriel, Mpumalanga, has been overturned by the Gauteng High Court, Johannesburg.
• The court found the power utility was “selective” in treatment of the two companies that were the front-runners. IOL

GLOBAL MARKETS

Stocks:
 

• In regular trading on Monday, the Dow gained 1.11%, the S&P 500 added 1.15% and the Nasdaq rallied 1.48%.
   
• US stock futures were little changed on Tuesday as investors prepare for a key US inflation report that could provide fresh clues about the trajectory of Federal Reserve interest rate hikes.
  • Futures contracts tied to the three major indexes were all trading near breakeven.
     
• US markets also rebounding and recovering losses from last week when a chorus of Fed officials reiterated their commitment to stamp out inflation with more rate increases, dashing hopes that this tightening cycle would end soon.
  • Annual inflation in the US is expected to have slowed further to 6.2% in January.
    • Also  the lowest since October 2021. 

Bonds:

• The yield on the US 10-year, declined to 3.69% after it topped 3.7%, a level not seen in more than a month.
  • Investors adjust their portfolios for a higher terminal rate.
    • Richmond Federal Reserve president Thomas Barkin was among the latest officials to acknowledge that the US economy is slowing.
    • BUT said it is fundamental to continue hiking to ensure inflation doesn’t get entrenched.
  • Investors now see the Fed raising the fed funds rate to 5%-5.25%, with the world’s most influential central bank delivering a 25 bps hike in March and May before pausing.
    • Looking ahead, Wall Street and the Fed are again in a standoff on the future path of interest rates,
    • with the former betting on a rate cut later this year while the latter reaffirmed its view that interest rates will stay higher for longer.

Yesterday

• The Dow  gained 376 to 34,245
• The SP500 added 46 to 4,137
• The Nasdaq  gained 173 to 11,891

:  image: Trading economics

OVERNIGHT HEADLINES

The US dollar index fell toward 103 on Tuesday.

• With Treasury yields declining and stocks rebounding ahead of the much awaited US CPI REPORT.
• Analysts widely expecting the data to show that inflationary pressures eased further in January.
• But, a chorus of Federal Reserve officials reaffirmed their commitment to bring down inflation with more rate increases in various statements.
  • Fed Chair Jerome Powell also noted that rates could peak higher than anticipated if the jobs market remains robust and if inflation numbers do not abate.
    •  The dollar weakened slightly across the board, with the most pronounced selling activity against the Japanese yen.

Asian markets trading firmer ahead of today’s US CPI report.

• Earlier this morning, data showed that the Japanese Economy Rebounded Less than Expected in Q4
  • it expanded 0.2% QoQ in Q4 of 2022, falling short of market consensus of a 0.5% rise.
    • On an annualized basis, the GDP rose 0.6%. For full year, the economy advanced 1.1%, slowing from 2.1% in 2021.
• In Japan, the Nikkei 225 rose 0.6% to 27,580, recouping some losses from the previous session and taking cues from a strong lead on Wall Street.
  • Traders  look ahead to the US CPI report which is expected to show that inflationary pressures eased further in January.
  • Investors also digested data showing Japan’s economy rebounded less than expected in the fourth quarter of 2022, with private consumption picking up as the country lifted border restrictions.  Reuters

Crude oil, US WTI futures declined  to $79/bl, retreating from over two-week highs.

• Prices under pressure after the US announced plans to release 26 million barrels of oil from strategic reserves, countering the impact of Russian output cuts and recovering Chinese demand.
  • The Ceyhan terminal in Turkey, which exports about 1 million barrels of crude per day, also resumed operations after being disrupted by a major earthquake last week.
    • Earlier, the US oil benchmark reached two-week highs above $80 in the previous session;
    • This after Russia announced late last week its intention to cut output by 500,000 barrels a day in March, or about 5% of total production. Gulf energy news
  • But, investors remain cautious ahead of US inflation data due later on Tuesday that could offer fresh clues on the Federal Reserve’s rate hike path.

Gold rebounded to trade above $1860/oz as traders booked profits on Dollar longs ahead of today’s CPI report.

• This was underpinned by a slight dollar pullback as investors cautiously awaited the US CPI report which is expected to show that inflationary pressures eased further in January.
• However, Bullion continues to nurse losses from earlier this month as hawkish signals from Federal Reserve officials weighed on sentiment.
  • Fed policymakers signaled that more rate hikes were needed to bring inflation down to the 2% target.
  • Fed Chair Jerome Powell also noted that rates could peak higher than anticipated if the jobs market remains robust and if inflation numbers do not abate.
  • Markets now expect the Fed funds rate to peak around 5.2% in July.
  • Gold is highly sensitive to the rates outlook as higher interest rates raise the opportunity cost of holding non-yielding bullion and vice versa.