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Morning NOTE

GOOD MORNING

The ZAR continues to trade near weaker levels on the back of a stronger Dollar due to the US debt ceiling impasse.

OPENING RATES

• USDZAR : 19.1500
• EURZAR : 20.8100
• GBPZAR : 23.8700

SOUTH AFRICA

#RUSSIAGATE

• The ANC says that the leading political party in Russia has warned that if the country arrests Vladamir Putin when he arrives in the country for the Brics summit later this year, it will be a declaration of war.
  • South Africa will be hosting the annual Brics summit later this year and all of the Brics nations leaders are set to attend.
  • International Relations and Cooperation Director-General Zane Dangor said the South African government is yet to take a hard stance on Russian President Vladimir Putin’ s visit to the country during the BRICS (Brazil, Russia, India, China, and South Africa) summit.
    • But Putin’s attendance has left South Africa in a tight spot –
      • with some calling for the country’s authorities to detain Putin in line with a warrant of arrest issued by the International Criminal Court (ICC) in March.
    • SA will play host to the bloc’s annual summit in August. EWN

SANDF

• Kremlin says SA army chief in Moscow for ‘combat readiness’ talks, as SANDF claims ‘goodwill visit’
  • Hours after President Cyril Ramaphosa reiterated that South Africa was firmly non-aligned in the Russia-Ukraine conflict, the Russian Defence Force announced that SA’s army chief is in Moscow.  News24

ESKOM

• Former Eskom CEO Andre de Ruyter provided details of a major syndicate operating at Eskom’s power plants
  • – the fuel oil syndicate – which cost the utility and South Africa R1.2 billion and more over several years.
• This was one of the snippets shared by De Ruyter in his new book
  • De Ruyter described how he realised that aside from neglected equipment, ageing power stations and an eroded skills base, Eskom was crippled by corruption on a staggering scale.
  • One example of this corruption, and the extent of such, is the fuel syndicate which operated at Tutuka power station in 2021, and likely at others as well, according to De Ruyter’s account.
  • The operations of this fuel syndicate partly stemmed from issues related to another scheme which cost Eskom even more money – the theft of coal. Business tech

GLOBAL MARKETS

Stocks

• In regular trading on Monday, the Dow rose 0.14%, the S&P 500 gained 0.3% and the Nasdaq Composite jumped 0.66%.
  • Traders noted six out of the 11 S&P sectors finishing higher led to the upside by materials, financials and technology.
• US stock futures eased on Tuesday after the major averages booked gains during Monday’s regular session,
  • as investors continued to assess whether US government could reach a deal on the debt ceiling.

Futures contracts tied to the three major indexes all declined at least 0.1%.

• *** WASHINGTON — Treasury Secretary Janet Yellen reaffirmed to Congress on Monday that the United States could default on its debt as early as June 1.
  • “With additional information now available, she said they  still estimate that Treasury will likely no longer be able to satisfy all of the government’s obligations,
  • if Congress has not acted to raise or suspend the debt limit by early June, and potentially as early as June 1”.
• Markets remain rattled by the comments – resulting in risk assets pricing lower

Bonds

• The yield on the US 10-year approached 3.5% in mid-May.
  • Investors monitored the ongoing debt ceiling impasse and awaited insights from several Federal Reserve officials regarding the central bank’s intentions.
  • President Joe Biden announced that he would meet with congressional leaders on Tuesday to discuss a plan for raising the nation’s debt limit.
  • In the meantime, traders continue to bet the Federal Reserve will pause rate hikes during its upcoming meeting next month. 
     
• Atlanta Fed President Bostic signalled his preference for pausing interest-rate increases,
  • BUT Minneapolis Fed President Neel Kashkari suggested the central bank may have more work to do in its inflation fight.
  • Investors now look ahead to further talks between President Joe Biden and congressional leaders amid efforts to raise the US debt limit,
    • as well as more Fed commentary and earnings reports on Tuesday.

Yesterday

• DOW +47 to 33,348
• SP500 +12 to 4136
• NASDAQ  +5 to 13,418

  image: Trading economics

OVERNIGHT HEADLINES

The US dollar

• The US dollar slipped to around 102.3 on Tuesday, remaining under pressure as traders fretted about the risk of a US default.
• Traders concerned if an agreement between Democrats and Republicans on raising the debt ceiling is not reached.
• Meanwhile, Atlanta Fed President Raphael Bostic their preference for pausing interest-rate increases,
  • while Minneapolis Fed President Neel Kashkari suggested the central bank may have more work to do in its inflation fight.
• Investors now look ahead to further talks between Biden and congressional leaders and more central bank commentary on Tuesday. FX News

Asian markets tracking Wall Street higher

• In Japan, the Nikkei 225 jumped 0.73% to close at an 18-month high of 29,843, as strong domestic earnings and a weak yen boosted the outlook for Japanese stocks.
  • Local markets also tracked gains on Wall Street overnight as investors remained hopeful that the US government would reach a deal on raising the debt ceiling.
  • Technology stocks led the charge, with strong gains and other index heavyweights also advanced, including Mitsubishi UFJ (2.8%), Fast Retailing (1%) and Nintendo (0.8%).
• In China, the Shanghai Composite fell 0.6% to close at 3,291. Caution dominating sentiment as investors reacted to key economic releases from China that largely missed expectations.
  • The country’s industrial production, retail sales and fixed asset investment all came in below forecasts in April, pointing to a challenging recovery path.
  • Meanwhile, China’s unemployment rate fell to a 19-month low of 5.2% in April. Technology stocks led the decline.

Crude oil

• US WTI crude futures climbed toward $72 per barrel on Tuesday, rising for the second straight session as supply-side disruptions and the resumption of US oil reserve purchases supported prices.
  • Analysts pointed to the growing threat of supply disruptions in Canada as the number of wildfires in its main producing region increases.
    • Iran also seized a foreign-flagged tanker in the Persian Gulf, the third such action in a month.
  • Meanwhile, the US government is soliciting bids for up to 3 million barrels of crude oil to replenish its depleted Strategic Petroleum Reserve, with deliveries planned for August.
    • That would be the second attempt to refill the SPR after the US released more than 200 million barrels last year to bring down energy prices.
    • Still, investors remain cautious about the risk of a US recession and an underwhelming demand recovery in China. Gulf Energy news

Gold

• Bullion steadied above $2,010/oz on Tuesday, holding gains from the previous session as the risk of a US default and global economic uncertainties spurred some safe-haven demand for the metal.
  • President Joe Biden and congressional leaders are set to resume talks later today after previous meetings yielded little progress toward raising the US debt ceiling.
  • Investors also tracked the latest commentary from US Federal Reserve officials, who largely pushed back on interest rate cuts this year.
  • Markets now look ahead to a slew of US economic data and more central bank commentary on Tuesday to guide the rates outlook.
  • Elsewhere, Turkey’s presidential election is headed for a runoff as neither incumbent President Tayyip Erdogan nor his main challenger, Kemal Kilicdaroglu, secured a majority. Kitco metals