The ZAR recovered more than 50 cents or 2.6% after the US ambassador retracted and apologised for his comments made last week.
The Rand recovered sharply after the US Ambassador, Reuben Brigety, retracted his comments about SA weapon sales to Russia.
- Cyril Ramaphosa launched an independent inquiry, with a retired judge to oversee proceedings after the SA government denied any knowledge of weapons sales.
- Earlier, Ramaphosa also spoke to Ukrainian President Zelensky, where Ramaphosa assured him that no weapon sales took place.
- US – SA tensions have escalated recently after SA refused to condemn Russia’s invasion despite pressure from the US and its allies.
- In addition, SA’s involvement with BRICS also an annoyance to the USA who’ve been fully supportive of AGOA, the African Growth and Opportunity act.
- AGOA was passed in May, 2000 and has since been renewed to 2025.
- The legislation significantly enhances market access to the US for qualifying Sub-Saharan African (SSA) countries.
- Qualification for AGOA preferences is based on a set of conditions contained in the AGOA legislation.
- In order to qualify and remain eligible for AGOA, each country must be working to improve its rule of law, human rights, and respect for core labour standards.
- The USA have however warned SA about its non-aligned status and made it clear that SA needs to behave that way, if it wants to continue to benefit from AGOA.
Despite the sharp reversal, the ZAR likely to face some headwinds on additional fronts.
- The Turkish elections was undecided with incumbent Erdogan achieving 49.39% vs 44.97% for the opposition
- Markets driving the Lira to a new low of TL 19.50/$
- US dollar rebounding on the back of safe haven buying following the debt-ceiling and grid-locked negotiations between the Democrats and Republicans.
- In addition, Fed Governor Bowman called for more rate hikes, adding she not was not convinced that inflation has fallen enough.
- Last week US consumer confidence dropped sharply indicating a US economy that remains under pressure, due to high interest rates and inflation.
Markets this morning
- USD 102.500
- SP500 4138
- EURUSD 1.0871
- US10YT 3.45%
Data This week
- 11h00 : EU INDUSTRIAL PRODUCTION 0.9% EXPECTED YOY VS 2% PREVIOUS
- 14H45 : ATLANTA FED BOSTIC SPEECH
- 15H15 KANSAS FED KASHARI SPEECH
- 11H00 EU GROWTH RATE Q2 1.3% EXPECTED YOY VS 1.8% PREVIOUS
- 11H30 SA UNEMPLOYMENT 32.5% EXPECTED VS 32.7% PREVIOUS
- 14H30 US RETAIL SALES 0.7% EXPECTED MOM VS -0.6% PREVIOUS
- 14H30 US RETAIL SALES 1.4% EXPECTED MOM VS 2.9% PREVIOUS
- 15H15 US INDUSTRIAL PRODUCTION 0.3% EXPECTED VS 0.5%
- 11H00 EU INFLATION 7% EXPECTED VS 6.9% PREVIOUS
- 13H00 SA RETAIL SALES 1.2% PREVIOUS VS -0.5% PREVIOUS
- 14H30 US HOUSING STARTS +1.43M VS 1.42M PREVIOUS
- 14H30 US INITIAL JOBLESS CLAIMS 254K EXPECTED VS 264K PREVIOUS
- ***17H00 FED CHAIRMAN JEROME POWELL SPEECH
Market Movement Today:
The ZAR recovered after the US apologised for their weapon sales to Russia allegations.
- The local unit gaining more than 50 cents on the news reports after Ramaphosa called for an independent inquiry.
- This morning we opening at 19.0200/$ vs 19.51/$ last week.
- The Dollar, however recovering from earlier lows on the back of “safe haven” treasury buying as the US Democrats and Republicans continue to argue over the debt ceiling.
- BUT Weak consumer data, as well as a slowing in the inflation picture, indicating a tough time for the Dollar going forward.
- The Rand remains stretched at these levels as fundamentally it remains undervalued vs the Dollar.
- No surprises in the bond market as investors piled into SA government bonds.
- The SA 10YT yield dropping to 10.74% after trading at 11.25% last week.
- This indicating that a healthy appetite for SA risk remains.
- We expect, the ZAR to benefit from the changing landscape for the Dollar that will be risk asset supportive.
- And the early action in the Bond market indicates a healthy appetite remains from high yielding debt.
- This will be ZAR supportive.
- USD 102.500
- SP500 4138
- EURUSD 1.0871
- US10YT 3.45%
- Trade : ZAR recovering after the SA government denied any involvement and Rampahosa appointed as an independent inquiry.
- SELL USDZAR ON RALLIES
- USDZAR : Expect a range 18.8200-19.3600
- Importers : 19.0000-18.8200
- Exporters : 19.1800-19.3600
- EURZAR : Expect a range of 20.5100-21.9600
- Importers : 20.6600-20.5100
- Exporters : 20.8100-20.9600
- GBPZAR : Expect a range of 23.5400-24.0800
- Importers : 23.7200-23.5400
- Exporters : 23.9000-24.0800
- USDZAR : 19.0200
- EURZAR : 20.7200
- GBPZAR : 23.7800
- President Cyril Ramaphosa held talks with his Ukrainian counterpart Volodymyr Zelenskiy on Saturday.
- This amid allegations that the country supplied weapons and ammunition to Russia, despite Pretoria having taken a neutral stance on its invasion of Ukraine.
- He said he called on Ramaphosa “to join together with other countries of the world, all continents, and Africa in joint work to implement our peace formula.”
- South Africa’s presidency said Brigety’s comments were “disappointing” and no evidence had been produced to back up the claim.
- At the same time, officials agreed to start an independent investigation. EWN
- André de Ruyter’s combative memoir, Truth to Power: My Three Years Inside Eskom, was released on Sunday.
- De Ruyter recounts how he became increasingly aware he heads an organisation where employees are connected to organised crime syndicates.
- He calls Mpumalanga the “Wild West in terms of the law”, where stakeholder events must offer buffets because individually plated meals “open the door for poisonings”.
- Much of the book details his exasperation with the slipshod way power stations are run, with horrific descriptions of neglect and incompetence. News24
- Eskom will renegotiate its diesel budget with the National Energy Regulator of South Africa (Nersa).
- The SOE needs more money to burn fuel to accommodate the electricity minister’s winter plan and the exemptions ordered by the nation’s High Court, reported Bloomberg.
- On Friday (5 May), the Pretoria high court ruled in favour of 19 interest groups who sought urgent relief for specific sectors to be spared from load-shedding. Bloomberg
- US stock futures slipped on Monday as the Dow and S&P 500 came off a two-week decline, while investors continued to weigh the outlook for the US economy and monetary policy.
- Dow and S&P 500 futures fell 0.2%, while Nasdaq 100 futures dropped 0.3%. Last week, the Dow and S&P 500 tumbled 1.11% and 0.29%, respectively,
- as concerns about the debt ceiling, banking sector risks and the broader economy dampened investor sentiment.
- Data from the University of Michigan showed that US consumer sentiment declined to a six-month low in May and inflation expectations for the next five years were the highest since 2011.
- Meanwhile, President Joe Biden and congressional leaders are scheduled to meet again this week as the US draws nearer to the so-called “X date,” or when the government may go into default.
- The yield on the US 10-year Treasury note was around 3.43%, after touching 3.35% earlier in the week.
- Investors processed a batch of economic data and the outlook for the Fed’s rate path.
- A report from the University of Michigan showed that inflation expectations for the next five years increased to the highest level in 12 years.
- The University of Michigan consumer sentiment for the US fell sharply to a six-month low of 57.7 in May, well below forecasts of 63, with both current conditions and expectations gauges substantially down
- Earlier in the week, both consumer and producer inflation showed signs of easing inflationary pressures, while the claims report pointed to a softer labour market.
- Currently, markets are pricing in a pause in rate hikes by the Fed in June but the debt ceiling and the regional banking crisis remain in the spotlight.
- DOW 33,300 -8 pts
- SP500 4125 – 6 points
- NASDAQ 13 385 -43 points
image: Trading economics
The US dollar
- The US dollar steadied above 102.5 on Monday, hovering at its highest levels in over a month after gaining about 1.4% last week.
- Analysts attributed the currency’s strength to increased safe-haven demand as global economic uncertainties weighed on risk assets.
- Federal Reserve Governor Michell Bowman also said last week that the central bank will probably need to raise interest rates further if inflation persists,
- adding that key data so far this month has not convinced her that price pressures are receding.
- BUT, data from the University of Michigan released Friday showed that US consumer sentiment declined to a six-month low in May and inflation expectations for the next five years were the highest since 2011. Fx news
Asian markets higher across the region.
- In Japan, the Nikkei 225 rose 0.45% to 29,520, reaching their highest levels in one-and-a-half years, underpinned by strong domestic earnings and a weak yen.
- Investors also cheered data showing April producer prices in Japan rose the least in 20 months amid signs easing raw materials costs.
- Financial firms led the charge, with notable gains from Mitsubishi UFJ (0.9%).
- In China, the Shanghai Composite fell 0.5% to around 3,255, with mainland stocks struggling for direction as investors awaited key economic data from China this week.
- The data to gauge the strength of the country’s recovery from the pandemic slump.
- A slew of economic releases including industrial production, retail sales, fixed asset investment growth and unemployment rate are slated for Tuesday.
- Notable gains were seen from new energy firms . Reuters
- US WTI crude futures traded near $70/bl on Monday after declining for four straight weeks.
- Fears of a US economic slowdown and a slower-than-expected recovery in China weighed on the demand outlook.
- In the US, latest data showed that consumer sentiment fell to a six-month low in May and inflation expectations for the next five years were the highest since 2011.
- President Joe Biden and congressional leaders are also scheduled to meet again this week as the US draws nearer to the so-called “X date,” or when the government may go into default if the debt ceiling is not raised.
- Meanwhile, investors will be watching key economic data from China this week to gauge the sustainability of the country’s recovery from the pandemic slump.
- Elsewhere, OPEC announced that it expects higher demand for crude, leading to expectations of a supply deficit in the second half of the year if the producer group delivers on its latest production cuts. Gulf Energy news
- Gold prices fell to below $2,010 /oz after the Dollar recovered on safe haven buying.
- Bullion prices extending its decline from the near-record-high of $2,050 on May 5th as a firmer US dollar made gold more expensive for foreign purchasers, weighing on buying volumes.
- Still, a batch of new economic data underscored current trends of lower inflation and a slower labour market in the United States, strengthening expectations that the Federal Reserve will pause its tightening cycle in its next meeting.
- Producer inflation fell more than expected in April, backing hopes of subdued prices after a cooler-than-forecasted CPI print for the period.
- At the same time, weekly unemployment claims rose the most since October 2021, suggesting that higher borrowing costs are having a greater impact in the US economy. Kitco metals