View this email in your browser

Morning NOTE

GOOD MORNING

The ZAR continued its recent gains and reached 17.0500 ahead of the Fed’s final FOMC meeting on Wednesday.

OPENING RATES

• USDZAR 17.2100
• EURZAR 18.3400
• GBPZAR 21.3200

SOUTH AFRICA

ESKOM CRISES CONTINUES

• Andre De Ruyter resigned and it is now widely expected that current board Chair Makwana will return to the position he occupied in 2009.
  • In 2009, Makwana – then a non-executive director – acted in that role for seven months.
    • He was reappointed to the board and installed as chairperson in October this year.
    • He has promised to bring down the price of electricity, while committing Eskom to dramatically improve the performance of the company’s creaking power stations. IOL
       
• Andre’ De Ruyter resigned after severe political attacks from within the ANC government
  • and no public backing from either President Cyril Ramaphosa (himself under pressure following Phala-Phala) as well as
    • Public enterprises minsters Pravin Gordhan, who has also stayed silent.
  • De Ruyter felt his position to be untenable and subsequently issued his resignation
    • The Minister of Public Enterprises, Pravin Gordhan, wished André de Ruyter well after he resigned as Eskom’s chief executive officer (CEO).
      • Gordhan said De Ruyter “carried an enormous burden on behalf of South Africa” and thanked him for what he called “sacrifice and resilience in a difficult job”. News24

Loadshedding level : 5
  
STRIKES

• Another strike is looming at Makro, as workers affiliated to the union Saccawu are set to down tools, along with workers at other companies within the Massmart group.
  • The union said that it would go on strike on Thursday, supported by workers from stores such as Game, Fruitshop, and Builders Warehouse.
  • This strike over wage increases follows another unsuccessful engagement with Massmart at the CCMA last week. EWN

GLOBAL MARKETS

Stocks:

• The Dow lost 150 points on Wednesday, while the S&P 500 and the Nasdaq dropped 0.6% and 0.7%, respectively,
  • Investors digested the latest decision on monetary policy and subsequent remarks from Fed Chair Jerome Powell.
  • The FED raised its federal-funds rate by a half percentage point to a 15-year high.
  • At the same time, the peak for the federal funds rate is now projected at 5.1% next year, with cuts in rates coming only in 2024.
  • Meanwhile, Powell said at the news conference following the decision that interest rates would stay elevated for some time
  • but that the central bank is getting close to reaching the end of a tightening cycle. Reuters

Bonds:

• The yield on the 10-year US Treasury note fell back to under the 3.5% mark, on projections of a sharp slowdown in the US economy.
  • The move showing investors challenging the Federal Reserve’s hawkish signals in its December meeting.
  • The Fed delivered a 50bps interest rate hike to 4.25%-4.5% as widely expected, slowing from the four consecutive 75bps increases since June.
  • The inversion of the spread between the 2-year and the 10-year bond yields widened past 76bps, approaching the 1981-high of 85bps touched on December 7th.
     
• South Africa’s 10-year government bond yield was around 10.3%.
  • It was the lowest since November 30th, after the majority of SA’s parliament voted not to initiate impeachment proceedings against President Cyril Ramaphosa.
  • Investors were spooked in recent weeks by the uncertainty surrounding the fate of Ramaphosa and the continuity of his reform agenda.
  • On the domestic monetary policy front, SA inflation dropped to 7.1% that could affect the SARB’s monetary policy tightening agenda in 2023. Bloomberg

YESTERDAY

• The Dow declined -142 to 33,966
• The SP500 dropped -24 to 3,995
• The Nasdaq was lower by -85 to 11,170

•   Image: Trading Economics

OVERNIGHT HEADLINES

THE FED

• The Federal Reserve continued its battle against inflation by raising its benchmark interest rate to the highest level in 15 years.
• The Federal Open Market Committee (FOMC) voted to boost the overnight borrowing rate by half a percentage point, taking it to a targeted range between 4.25% and 4.5%.
  • Along with the increase came an indication that officials expect to keep rates higher through next year, with no reductions until 2024.
  • The new level marks the highest the fed funds rate has been since December 2007.
  • More importantly it was last this high just ahead of the global financial crisis, whereafter the Fed loosened monetary policy aggressively.
    • …to combat what would turn into the worst economic downturn since the Great Depression. CNBC

 
Asian markets mixed on the back of a topsy turvy Wallstreet. Markets welcoming the FED’s 50 bps hike but then retracing on comments that rates will continue to rise in 2023.

• In Japan, the Nikkei 225 opened sharply lower on Thursday before recovering to around breakeven.
  • Traders citing the US Federal Reserve’s widely expected 50 basis point rate hike, BUT the case for higher rates in 2023 spooking investors.
  • Investors also reacted to data showing Japan’s trade deficit expanded more than expected in November as imports outpaced exports.
  • Technology stocks mostly declined and tracked their US peers lower. Reuters
     

• The US  dollar continued to slide on the back of benign inflation data as well as a smaller rate hike by the Fed.
  • The world’s largest central bank hiking rates by 50 bps causing the Greenback to fall below the 104 mark.
  • The Buck  hovering at the lowest level in six months as investors digested the Fed’s interest rate hike and fresh economic projections.
  • The central bank raised its key rate by 50bps as largely expected, but FOMC members indicated that its key interest rate will be at 5.1% by the end of 2023.
  • This was well above September’s projections of 4.6%, and challenging expectations that interest rate cuts would start in the third quarter of next year.
  • However, with inflation and price pressures easing across the globe, expect an adjustment to this policy. Fx news

     

• Crude oil WTI rose more than 3% to above $77/bl and  Brent crude followed by also rising  more than 2% to $83/bl.
  • A chance of a demand recovery in China supporting the market.
• OPEC and the International Energy Agency offered a somewhat bullish outlook for markets next year,
  • citing the reopening of the Chinese economy and a less aggressive tightening from major central banks as crucial drivers for growth and fuel demand.
• On the supply side, OPEC+ decided to stick to their existing policy of reducing oil output by 2 million barrels a day from November through 2023.
  • At the same time, the Keystone Pipeline that connects fields in Canada to refiners in the US Gulf Coast remained shut.  Gulf energy news

     

• Gold prices traded lower, but remained above $1800, retreating from session-highs of $1812.9.
  • Gold traders citing the Federal Reserve delivered a smaller 50bps rate hike as expected but signalled the terminal rate will be higher than initially expected.
    • At the same time, no interest rate cuts are anticipated before 2024.
  • Traders now await the ECB, the BoE and the Swiss National Bank monetary policy decisions due tomorrow.
    • Still, gold prices have been trading at six-month highs this month, as investors bet major central banks will soon start slowing the pace of rate increases. Kitco metals