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Morning NOTE

GOOD MORNING

The ZAR traded in a wide range, before trading weaker towards R18/$ after the US CPI report.

OPENING RATES

• USDZAR 17.9700
• EURZAR 19.1900
• GBPZAR 21.9400

SOUTH AFRICA

• Members of Parliament will continue their debate on the State of the Nation Address (Sona) on Wednesday after opposition MPs tore into the president’s address on Tuesday.
  • Opposition parties took turns in criticising President Cyril Ramaphosa’s address, with some calling for his resignation.
  • But ANC members came to Ramaphosa’s defence, especially on Eskom and the power crisis.
     
• Mineral Resources and Energy Minister Gwede Mantashe on Tuesday said the country doesn’t have two years to wait for the resolution of the power crisis.
  • He said there must be clear time frames.
  • He also added that  the new electricity minister should focus his or her energy on improving the energy availability factor of the most problematic power stations.
     
• Cape Town Mayor Geordin Hill-Lewis has strongly condemned the docking of a Russian battleship in the city’s harbour.
  • Replying to a tweet on the Russian government page, Hill-Lewis did not mince his words about South Africa hosting the ship.
  • “We are not hosting this warship, nor is it welcome in the Mother City. Cape Town will not be complicit in Russia’s evil war,” he said.
  • Hill-Lewis said that President Cyril Ramaphosa “must answer for his complicity”.

GLOBAL MARKETS

Stocks:
 

• On  Tuesday, the Dow and S&P 500 lost 0.46% and 0.03%, respectively, while the Nasdaq Composite gained 0.57%.
  • US stock futures eased on Wednesday as investors assessed January’s higher -than-expected inflation report and the latest Federal Reserve commentary.
     
• On Wednesday , The annual CPI rate in the US slowed slightly to 6.4% in January from 6.5% in December, the lowest since October 2021
  • but above market expectations of 6.2%.
  • Analysts suggested the strong CPI reading was not entirely a surprise so the market took it in stride.
  • Investors also sifted through remarks from Fed officials who largely backed further rate hikes,
    • though Fed’s Harker said “we are likely close” to being restrictive enough.

Bonds:

• The yield on the US 10-year, seen as a proxy for global borrowing costs, approached 3.8%, a level not seen in more than a month.
  • Investors adjust their portfolios for a higher Fed Funds terminal rate.
  • The closely watched US CPI reading for January landed at 6.4%, the lowest since October 2021, still above economists’ forecast of 6.2%.
  • Traders citing it opens the door to further rate hikes by the Federal Reserve.
  • Money markets have now priced at least two more 25 basis point rate hikes this year and see interest rates peaking at 5.2% by July.

Yesterday

• The Dow declined 156 to 34,089
• The SP500 was flat at 4,136
• The Nasdaq gained 68 points to 11,960

:  image: Trading economics

OVERNIGHT HEADLINES

• The US dollar strengthened above 103, finding some support after a stronger-than-expected US CPI report bolstered expectations the Federal Reserve will need to keep pushing interest rates higher to bring down inflation.
  • The latest Fed commentary also showed that policymakers largely backed more rate increases,
    • BUT Philadelphia Fed Bank President Patrick Harker said the Fed was nearing the point where rates were restrictive enough.
  • Investors now look ahead to US retail sales data for more clues about the economy.
  • The dollar strengthened across the board, with the most pronounced buying activity against the Australian and New Zealand dollars. FX news
     

Asian markets fell on Wednesday as a higher-than-expected US inflation report supported the case for further Fed rate hikes.

• Investors also assessed the impact of Kazuo Ueda’s nomination as the next BOJ governor, as well as the PBOC’s decision to add more cash into the financial.
  • Shares in Australia, Japan, Hong Kong and China all declined.
• In Japan, the Nikkei 225 fell 0.37% to close at 27,502, giving back gains from the previous session.
  • Traders citing the latest inflation reading in the US came in higher than markets anticipated, supporting the case for further Federal Reserve interest rate hikes.
  • Investors also continued to assess the implications of Kazuo Ueda’s nomination as the next Bank of Japan governor, who will be the first academic economist to run the central bank in post-war Japan.
  • Technology stocks led the retreat, with notable losses from SoftBank Group (-1%). Reuters
     
• Brent crude oil declined towards $85/bl  per barrel on Wednesday, sliding for the second straight session after an industry report showed US crude inventories jumped by 10.5 million barrels last week.
  • The increase was much higher than market forecasts for a 321,000 barrel increase.
  • Investors also assessed a US inflation report which signaled the Federal Reserve will need to push interest rates higher.
  • Also, on Tuesday, oil prices came under pressure after the US government announced plans to release an additional 26 million barrels of oil from strategic reserves.
    • Supply worries also eased after the EIA said it expected record March production from the seven largest US shale basins.
    • Keeping a floor under prices, OPEC has revised its 2023 oil demand forecast by 100,000 barrels per day, citing higher demand from China.
    • On top of that, the cartel trimmed its supply outlook, saying it plans to stick with production quotas fixed late last year for the rest of 2023. Gulf energy News
       
• Gold declined below $1,850/oz on the back of a rebound in the US dollar.
  • The Yellow metal, sliding back to its weakest levels in over five weeks.
  • Traders citing a stronger-than-expected US CPI report increasing  expectations the Federal Reserve will need to keep pushing interest rates higher to bring down inflation.
  • The latest Fed commentary also showed that policymakers largely backed more rate increases,
    • though Philadelphia Fed Bank President Patrick Harker said the Fed was nearing the point where rates were restrictive enough.
    • Markets now expect the Fed funds rate to peak around 5.26% in July from the current range of 4.5% to 4.75%.  Kitco metals report