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Morning NOTE

GOOD MORNING

The ZAR strengthened on Friday on the back of increased appetite for Risk assets following the weaker than expected US CPI report.

OPENING RATES

• USDZAR 17.3000
• EURZAR 17.8400
• GBPZAR 20.3400

SOUTH AFRICA

Summer rains

• The SA Weather Service said most parts of the country, including Gauteng, will have to contend with cold and wet weather for the rest of the week.
  • This past weekend, the weather service issued an orange level six warning of disruptive rain in Gauteng, North West and Mpumalanga.
     
• The Department of Water and Sanitation says it’s the first time in 21 years that eight Vaal Dam gates have been opened to assist with flood management.
  • The decision to open the gates comes in the wake of recent heavy rains.
    • The Vaal Dam is part of the integrated Vaal river system and includes 14 dams.
    • Water Department spokesperson Sputnik Ratau says by opening the gates, they will protect the infrastructure from collapsing. Source : EWN

SA Politics

Phala-Phala

• Cyril Ramaphosa on Sunday brushed aside calls for him to resign over an alleged criminal cover-up, as he set the stage for a key party conference next month.
  • On Sunday, the decision-making body of the ruling African National Congress (ANC) convened in Johannesburg,
    • The meeting was to discuss preparations for the party’s upcoming national elective conference.
    • It was however overshadowed, by the controversy surrounding accusations Ramaphosa attempted to cover up a multi-million-dollar cash theft at his luxury cattle farmhouse.
    • The scandal risks derailing Ramaphosa’s bid for a second term at the helm of the ANC, which in December is to pick a new leader in hotly contested internal polls.
  • The winner is to become the party’s candidate for the next presidential election in 2024.
     
• Much to the media’s surprise, earlier in the day, a presidential spokesman said Ramaphosa “will gladly step aside” if he were to be charged but stressed this was not the case.
  • Under ANC party rules members charged with serious crimes have 30 days to leave their post or face suspension.  Source : EWN
     

ESKOM

• Africa’s biggest renewable power company said it will take years for South Africa’s electricity supply woes to ease after the government’s bias toward coal led to the collapse of wind and solar energy manufacturers.
  • That legacy is being exacerbated by global supply chain issues that are slowing the construction of renewable plants, Chris Antonopoulos, chief executive officer of Amsterdam-based Lekela Power, said in an interview.
• However, in an opposing view ;
  • Certain emerging markets are pushing back,
  • Saying the “Climate debt trap” risks pushing emerging markets to the brink
    • Countries that borrowed heavily when interest rates were low are now struggling to fund projects that would make them more resilient to extreme weather.
    • Rising global borrowing costs are denting the finances of some of the most climate-vulnerable countries right when they most need money to fight the devastating impacts of global warming.
    • It’s a convergence of events that risks pushing developing nations into a “debt trap,”
• This was according to the Prime Minister of Pakistan, who addressed world leaders at the COP27 climate talks in Egypt last week. Source: moneyweb

GLOBAL MARKETS

Stocks:

• US stock futures slipped on Monday after the major averages posted their best weekly performances in months on softer-than-expected inflation data.
  • Lower CPI increased bets and bolstered the case for a less aggressive tightening campaign from the Federal Reserve. 
  • Last week, the S&P 500 rallied 5.9% for its best week since June and the Nasdaq Composite surged 8.1% for its best week since March.
  • This while the Dow gained 4.15% for the period.
  • Investors are betting that the Fed would moderate the size of their rate hikes to 50 basis points from December after a series of 75 basis point moves.
  • HOWEVER, pushing back was Fed Governor Christopher Waller, who warned that the central bank “still got a ways to go” in terms of the terminal rate.

Bonds:

• The yield on the US 10-year fell sharply to 3.8%, the lowest in one month, after fresh CPI data came cooler than expected.
  • Consumer prices rose by 7.7% in October, slowing from the 8.2% in the prior month and below expectations of 8%.
  • Core inflation also surprised to the downside at 6.3%, easing pressure on the Federal Reserve to hike rates for an extended period as signalled in its November meeting.
  • Fed fund futures show that markets expect a 50bps rate hike by the Fed in December after four consecutive 75bps increases, while expectations for the terminal rate eased to 5%.

ON FRIDAY

• The Dow added 32 points to 33,747
• The SP500 added 36 to 3,992
• The Nasdaq added 209  to 11,114

•  Image: Trading Economics
   

OVERNIGHT HEADLINES

• Asian markets lower following a strong showing last week as investors book profits.
  • In Japan, the Nikkei 225 fell 1.06% to close at 27,963. The main index retreating from two-month highs, dragged lower by a 13% plunge in SoftBank Group .
    • Investors also heeded remarks from Christopher Waller a US Fed governor, who warned against getting too optimistic over one inflation report.
      • He said that that the Fed “still got a ways to go” before ending interest rate hikes.
  • In Australia, the ASX 200 fell 0.16% to close at 7,146 on Monday.
    • Stocks lower following Wallers’s comments .
      • Australian shares also reversed early gains led by mining stocks as easing Covid restrictions and policy boosts for the property sector in China lifted commodity prices.  Reuters
         
• The US dollar rose toward 107 on Monday, rising slightly from near three-month lows after Federal Reserve Governor Christopher Waller warned investors against getting too optimistic over one inflation report.
  • He said that the central bank “still got a ways to go” with interest rate hikes.
  • Waller acknowledged that the Fed may slow the pace of rate increases in the upcoming meetings.
  • However he  emphasized that markets should focus on the terminal rate which is likely still “a ways off” rather than the pace of each move.
  • Investors are betting that the central bank would moderate the size of their rate hikes to 50 basis points from December after a series of 75 basis point moves in the past four meetings
     
• Crude oil WTI (the US contract) rose toward $90/bl . Prices rising for the third straight session on the back of an improving demand outlook in China.
  • This after the world’s top crude importer issued sweeping directives to boost its property sector and eased some Covid restrictions.
  • The prospect of even tighter supply also bolstered the bullish outlook after OPEC+ agreed to cut production by 2 million barrels per day in November, while the European Union ban on Russian oil is set to take effect in December.
  • Meanwhile, US Treasury Secretary Janet Yellen said over the weekend that EU sanctions will likely force Russia to offer some of its crude at a price set by the US and its allies.
    • She added this will be needed “ if Russia wants to avoid a shut-in of some supplies”. Source Bloomberg. Gulf energy news.
       

• Gold prices fell toward $1,760 an ounce on Monday, easing slightly from near three-month highs as the dollar and Treasury yields rose.
  • Gold falling against the Dollar after FED governor Christopher Waller warned investors getting carried away over one inflation report, and said that the central bank “still got a ways to go” with interest rate hikes.
  • Waller emphasized that markets should focus on the terminal rate which is likely still “a ways off” rather than the pace of each move.
  • Meanwhile, gold rallied more than 5% last week as softer-than-expected US inflation data raised hopes that the Fed would slow the pace of rate hikes in the upcoming meetings.
  • Investors are betting that the Fed would moderate the size of their rate hikes to 50 basis points from December after delivering four straight 75 basis point increases. Kitco metals report