Morning NOTE

GOOD MORNING

The ZAR strengthened on the back of lower than expected US PPI data, before sharply reversing following the Russian missile in Poland.

OPENING RATES

• USDZAR 17.3000
• EURZAR 17.9500
• GBPZAR 20.5500

SOUTH AFRICA

• ESKOM IS BATTLING TO AVOID A TOTAL COLLAPSE OF ITS GRID
  • This year saw the power utility intensify blackouts with the majority of the rotational power cuts implemented at stage 4.
    • SA’s deteriorating power grid has come into sharp focus following the release of a report that shows the effects of loadshedding on the general grid.
    • The report is expected to underline how significantly loadshedding has intensified in 2022, the first year that saw the majority of rotational power cuts implemented at stage 4.
    • This year was also the first since 2019 that saw stage 6 loadshedding implemented, and for far longer periods. EWN
• Joburg City Power said on Tuesday it’s been losing R300 million a day since July repairing its systems which have been affected by the frequent load shedding.
  • It said it’s received over 3,000 calls from Joburg residents just on Tuesday morning about power outages at have lasted over 24 hours in Hursthill, Renevuer and Randburg.
  • The power utility said it is working adamantly to ramp up maintenance by recruiting 500 technicians with 70 of them starting by 1 December. EWN
• Eskom said it is owed R52 billion by municipalities across South Africa.
  • The SOE said this debt made it difficult for entity’s ability to be self-sustainable.
  • Eskom also said it was in financial trouble and could not afford to absorb any more debt.
  • they called on government structures to come up with a workable plan on how municipalities can decrease the debt. EWN
• Public Enterprises Minister Pravin Gordhan is still playing his cards close to his chest, as Members of Parliament (MPs) on Tuesday pressed him on details of the transaction with Takatso Consortium.
  • The department said they’ve entered into a closed period, and it would be unwise to divulge details at this sensitive stage.
  • The South African Airways (SAA)‘s top leadership accompanied Gordhan to Parliament on Tuesday, where they have been grilled by the standing committee on public accounts (Scopa).

GLOBAL MARKETS

Stocks:

• US stock futures following  geopolitical concerns after reports that missile strikes crossed into Poland and killed two people dampened sentiment further.
  • Futures contracts tied to the three major indexes were all down about 0.1%.
• In regular trading on Tuesday, the Dow added 0.17%, the S&P 500 gained 0.87% and the tech-heavy Nasdaq Composite jumped 1.45%.
  • Those moves came as US PPI data came in below expectations in the latest sign of easing inflation pressures, supporting the case for a less aggressive Federal Reserve tightening.

Bonds:

• The yield on the US 10-year Treasury note fell below 3.8%, the lowest since early October, as the cooler-than-expected increase in producer prices added to the recent momentum of slowing inflation.
  • The data was consistent with the sharp slowdown in consumer inflation for October, easing expectations on how aggressively the Federal Reserve will tighten policy to fight price growth.
  • Fed Vice Chair Lael Brainard signalled that the central bank could soon slow the pace of its interest rate increases, saying that policymakers had already done a significant job in taming inflation.
  • Fed Governor Christopher Waller echoed a similar view but emphasized that the central bank is not close to a pause.
• Despite a higher degree of uncertainty regarding the Fed’s rate path, the narrative of a possible policy pivot consolidated as money markets price an over 80% chance of a 50 bps hike in December

YESTERDAY

• The Dow fell 154 to 33,592
• The SP500 flat at 3,991
• The Nasdaq  added 162 11,358

•  Image: Trading Economics

OVERNIGHT HEADLINES

• Asian markets mixed after a strong rally after the PPI before reversing gains, after the Russian missile strike in Poland.
  • In Japan, the Nikkei 225 added  0.14% to close at 28,028. Later in the session Japanese shares facing heavy selling pressure, after a Russian-made missile crossed into Poland and killed two people.
  • Markets also tracked developments as world leaders gather for a second day at the G20 Summit in Bali, Indonesia.

• The US dollar index steadied around 106.5 on Wednesday, remaining supported by haven demand amid fears of a wider conflict in Europe after a Russian-made missile hit Polish territory and killed two civilians.
  • However, Polish President Andrzej Duda said his government still doesn’t conclusively know who fired the missile while US President Joe Biden said the rocket was unlikely to have been fired from Russia.
  • Meanwhile, the dollar index briefly plunged to a three-month low of 105.34 on Tuesday after US PPI data came in below expectations.
  • Investors are betting that the central bank would moderate the size of their rate hikes to 50 basis points from December after delivering four straight 75 basis point increases.
  • Still, Fed officials warned that more work is needed to tame inflation. FX news

Inflation LOWER

• PPI inflation in the US eased for a fourth straight month to 8% in October of 2022, the lowest since July last year, from 8.4% in September. Figures compare with market forecasts of 8.3%. source: U.S. Bureau of Labor Statistics

WTI crude oil fluctuated near $87 per barrel on Wednesday as geopolitical concerns rattled markets after a Russian-made missile hit Polish territory and killed two civilians.

• Polish President Andrzej Duda said his government still doesn’t conclusively know who fired the missile and added that it was an isolated incident.
• The potential for a wider conflict in Europe threatens to exacerbate a tightening supply outlook in the oil market, with the European Union set to ban Russian crude flows from December.
• OPEC also trimmed its global oil demand growth forecasts for 2022 and 2023 again, citing mounting economic challenges such as high inflation, rising interest rates, and supply chain disruptions.
• Meanwhile, concerns about a global economic slowdown as major central banks tighten policy further and Covid-related uncertainties in top crude importer China kept a lid on oil prices. Gulf Energy news

Gold prices fell toward $1,770/oz , easing from a three-month high of around $1,786 reached in the previous session as investors took some profits off the table.

• All this while assessing the US rates outlook and the potential for a wider geopolitical conflict in Europe.
• Lower-than-expected US PPI data bolstered the case for a less aggressive tightening from the Federal Reserve.
• Markets betting that the central bank would moderate the size of their rate hikes to 50 basis points from December after delivering four straight 75 basis point increases.
• Still, Fed officials warned that more work is needed to tame inflation.
• Meanwhile, investors tracked geopolitical developments after a Russian-made missile hit Polish territory and killed two civilians, though the culprit remains unknown. KITCO metals report

THE WAR

• A U.S. intelligence official says Russian missiles struck an area near the border with Ukraine.
  • Two individuals have died, according to Polish media, after a projectile struck an area where grain was drying in, a Polish village near the border with Ukraine.
  • The State Department said the Biden administration was working with partners in the Polish government following an AP report that Russian missiles crossed into the NATO ally’s territory.
  • Poland is a member of NATO .
  • The North Atlantic Treaty Organisation established after WW2, to provide security to Western Europe against the influence and aggression from the former communist Soviet union.
  • Alliance members are obligated to defend each other against an attack or any forms of aggression.
  • It is one of the reasons Russia attacked Ukraine , to prevent them from seeking NATO membership.  AP (ASSOCIATED PRESS).