View this email in your browser

Morning NOTE

GOOD MORNING

The ZAR recovered more than 50 cents or 2.6% after the US ambassador retracted and apologised for his comments made last week.

OPENING RATES

• USDZAR : 19.0200
• EURZAR : 20.7200
• GBPZAR : 23.7800

SOUTH AFRICA

• 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

Eskom

• 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

GLOBAL MARKETS

Stocks

• 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.

Bonds

• 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.

On Friday

• DOW  33,300 -8 pts
• SP500 4125 – 6 points
• NASDAQ 13 385 -43 points

  image: Trading economics

OVERNIGHT HEADLINES

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

Crude oil

• 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

• 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