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Morning NOTE

GOOD MORNING

The ZAR weakened on the back of a higher than expected US CPI print for August.

OPENING RATES

• USDZAR 17.4200
• EURZAR 17.3800
• GBPZAR 20.0400

SOUTH AFRICA   

• Eskom chief operating officer Jan Oberholzer on Monday disclosed that a full 42 generating units have broken down since early the previous week – some more than once.
  • He admitted that the work done by Eskom and its contractors’ maintenance team is not up to standard and units frequently break down shortly after undergoing maintenance.
    • Oberholzer ascribed this to a lack of skills.
  • As a result, the struggling utility used its emergency reserves – diesel-driven open-cycle gas turbines and pump storage schemes, to try to keep the lights on. MoneyWeb
• The National Union of Metalworkers of South Africa (Numsa) on Tuesday evening said it reached a settlement agreement that was signed with bus company Putco following an intense wage strike by bus drivers.
  • The settlement includes among others implementation of a 6% wage increase on 1 October 2022.
  • It will be for all employees who were employed from 1 April 2020. EWN
•  President Cyril Ramaphosa, objected to the ruling in the Western Cape High Court, that upheld Public Protector Busisiwe Mkhwebane’s challenge to her suspension.
  • A full bench comprising three judges on Friday declared Ramaphosa’s decision to suspend Mkwhebane invalid and set it aside.
    • While her suspension was against the backdrop of the impeachment proceedings that were before Parliament,
    • The court found that it was improper as it came days after she had sent the president questions on the Phala Phala saga. IOL
• Massmart, subject to a full buyout offer from parent Walmart Inc, has begun shutting unprofitable and unviable Game stores across the country.
  • In December 2021, it announced that it had identified an “initial” “15 stores that will be subject to a possible sale”.
  • This followed the re-lay of all 114 Game stores in the country which allowed the retailer to compare sales trends and potential. News24

GLOBAL MARKETS

Stocks:

• US stocks fell sharply on Tuesday, after a hotter-than-expected US inflation reading.
  • The CPI print boosted speculation that the Fed will have to move even more aggressively to tame runaway price growth.
  • At one point, the Dow plunged nearly 1300 points and the S&P 500 fell 4.3%, marking their worst sessions since June 2020.
    • The Nasdaq 100 declined 5.5% for its sharpest decline since March of 2020.
  • After the inflation release, markets continue to price for a 75bps rate hike and this is still broadly expected next week.
• Declines were most pronounced in high-growth stocks as the prospect of higher interest rates triggered a rally in Treasury yields, denting appetite for such companies.

Bonds:

• Bond yields rose across the globe on the back of a higher than expected US CPI print. The US inflation beating estimates to reach 8.3%
  • The US 10-year yield consolidated above 3.4%, approaching an over 10-year peak of 3.5% touched in June.
  • A hotter-than-expected CPI report reinforced market bets on more hikes.
• The US annual inflation rate eased to 8.3% in August from 8.5% in July, less than markets have expected while the monthly figure went up 0.1%, against expectations of a 0.1% decrease.
• The US central bank is widely expected to deliver its third straight 75 basis point rate hike at the September 20-21 policy meeting.
• However alarmingly, Fed funds futures point to an over 30% likelihood of a more aggressive 100 basis point increase.
  • This supporting bets that the policy rate could reach 4.3% in early 2023.

YESTERDAY

• The Dow fell 1276 to 31,104
• The SP500 fell 177 to 3,932
• The Nasdaq fell 632 to 11,633

• Image: Trading Economics

OVERNIGHT HEADLINES

• Asian markets trading sharply lower, following the spike in US yields after the most recent inflation reading.
  • In Japan, the Nikkei 225 declined 2.78% to close at 27,819 after tracking sharp overnight losses on Wall Street.
    • The higher-than-expected US CPI for August triggered fears about more aggressive Fed rate hikes.
      • The hot US inflation report caught markets off guard as analysts were expecting prices to have at least levelled off and not climb higher.
        • Some bets were even in favour of much a bigger 100 basis point increase next week.
        • Meanwhile, sharp losses in the Japanese yen in the wake of strong US inflation numbers sparked further verbal intervention from authorities.
• In Australia, the ASX 200 Index fell 2.58% to close at 6,829. Index dragged down by sharp declines on Wall Street, following the CPI release.  
  • Technology and financial stocks led the declines, as well as the heavyweight miners mining and energy stocks,
    • as well as growth-oriented healthcare, consumer and clean energy-related names also posted sharp losses. Bloomberg
       
• US Crude oil were trading near $87/bl barrel, falling nearly $3/bl after a hotter-than-expected US inflation reading triggered a sell-off across all riskier assets.
  • The US continues to flood the market to keep a lid on prices and data showed, that emergency oil reserves in the US fell to the lowest level since October 1984.
    • This as the government set a plan in March to release 1 million barrels per day over six months to tackle high fuel prices.
  • On a brighter note, OPEC has stuck to its forecasts for global solid oil demand growth in 2022 and next year.
  • The cartel citing signs that developed economies remain resilient despite headwinds such as surging inflation. Gulf Energy News
     
• Gold prices crashed through the $1700/oz level following the latest US CPI report.
  • The spike in US yields and a stronger dollar, after a hotter-than-expected inflation print pushed bets of more jumbo rate hikes by the Fed to curb persistent inflationary pressures.
  • In Europe, investors bet the ECB will continue to rise borrowing costs sharply after the central bank delivered a historic 75bps rate hike early this month.
  • In addition, US rates fully priced for 75 bps with some Fed fund futures also opening up a 30% probability of a 100bps hike in September. Kitco metals
     
• The US dollar bounced sharply to approach 110 after the latest CPI report showed inflation eased less than expected in August.
  • The inflation print strengthening the case for the 3rd straight 75bps rate hike by the US central bank next week.
    • The US annual inflation rate eased to 8.3% in August from 8.5% in July.
    • This was however above market expectations of 8.1% while the core CPI also surprised to the upside with 6.3% .
  • The most pronounced selling activity was against the Japanese yen, which crossed again 144, the lowest since July 1998 AND
  • The Euro crossed parity AGAIN to trade at 0.9968, the pound was also approaching a 37-year low at 1.1491. FX news