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Morning NOTE

17 July 2023

GOOD MORNING

The ZAR consolidated around the R18/$ level after gaining more than 6.50% in the last 2 weeks.

SUMMARY

The Rand received some resistance around the R17.90/$ level before some profit taking took the local unit back above R18/$.

  • The local unit benefitting from a shit in sentiment away from the US dollar after data indicated inflation may be slowing in the world’s largest economy .
    • The dollar falling sharply vs the EURO, POUND and YEN.
    • Emerging markets currencies like the ZAR and Mexican Peso also gaining sharply after traders abandoned the safe-haven Dollar, in favour of the Riskier assets.
    • Stocks rallying across the board with the SP500 and tech heavy Nasdaq also printing new highs for 2023.
    • Gold remains firm around the $1950/oz level after US 10YT yields dropped below 4% to 3.80%.
       
  • We expect sentiment to be in favour of risk assets, ahead of next week’s US FOMC rates decision.
     
  • Globally, expect to BUY RISK ON DIPS and this likely to be ZAR supportive.
     
  • The SA Reserve bank sets rates on Thursday on the back of the MPC committee and markets are priced for unchanged.
     
  • With the Repo at 8.25% and the prime lending rate at 11.25%, it will allow for some breathing room for SA consumer.

Data This week
MONDAY

  • 14H30 : US NY EMPIRE STATE MANUFACTURING INDEX -4.3  EXPECTED VS 6.6 PREVIOUS

TUESDAY

  • 03H30 : RBA ( AUSTRALIA) MINUTES
  • 14H30 : US RETAILS SALES MOM 0.5% EXPECTED VS 0.3% PREVIOUS
  • 15H15 : US INDUSTRIAL PROUDCITON MOM  0%  VS -0.2% PREVIOUS

WEDNESDAY

  • 08H00 : UK INFLATION RATE 8.2% YOY EXPECTED VS 8.7% PREVIOUS
  • 08H00 : UK INFLATION  CORE RATE 7.1% YOY EXPECTED VS 7.1% PREVIOUS
     
  • 10H00 :SA INFLATION RATE 5.6% EXPECTED VS 6.3% PREVIOUS
  • 10H00 : SA INFLATION CORE RATE 5.2% EXPECTED VS 5.2% PREVIOUS
     
  • 11H00 : EU INFLATION RATE 5.5% EXPECTED VS 6.1% PREVIOUS YOY
  • 13H00 : SA RETAILS SALES -1.8% EXPECTED VS -1.6% PREVIOUS
  • 14H30 : US HOUSING STARTS 1.48M EXPECTED VS 1.631 PREVIOUS

THURSDAY

  • 14H30 : US WEEKLY JOBLESS CLAIMS  242K EXPECTED VS 237K PREVIOUS
  • 15H00 : SARB MPC INTEREST RATE DECISION  **UNCHANGED**
    • REPO 8.25% , PRIME LENDING RATE 11.75%

FRIDAY

  • 08H00  UK RETAIL SALES MOM 0.2% VS 0.3% PREVIOUS

Market Movement Today:

The Rand breached R18.000/$ to trade to R17.90/$ before retreating on the back of early Monday profit taking.

  • The ZAR gaining more than 6.5%, since touching 19.1500 2 weeks ago.
    • The flip in sentiment on the back of benign US inflation data, lending support to rise in Risk asset valuations.
       
  • US treasury yields remain under pressure after some important US economic data.
    • The US 10YT sharply lower below 4%, as traders pared bets for more hikes after next week’s FOMC meeting.
    • Markets continue to price for 25 bps hike at the July meeting.
       
  • Locally the SARB MPC meets on Thursday to set rates with traders expecting “no action” from the MPC.
    • In addition SA CPI due on Wednesday with 5.6% expected vs 6.3% previous.
    • It would be the first time that the nominal CPI rate printed inside the MPC’s 3-6 inflation targeting band, since the beginning of 2022.
  • This morning we opening slightly weaker on the back of profit taking especially with key SA events i.e. CPI and MPC.
    • The ZAR likely to range trade ahead of Wednesday .
  • Trade : SELL USDZAR on rallies  

Markets this morning

  • USDZAR 18.1300
  • DOLLAR 99.9000
  • EURUSD 1.1234
  • SP500 4,506
  • GOLD 1951
  • US10YT 3.83%

Expected Ranges:

  • USDZAR : Expect a range 17.9200-18.2400
    • Importers : 18.000-17.9200
    • Exporters : 18.1600-18.2400
       
  • EURZAR : Expect a range of 20.0800-20.4800
    • Importers : 20.1800-20.0800
    • Exporters : 20.3800-20.4800
       
  • GBPZAR : Expect a range of 23.4500-23.8500
    • Importers : 23.5500-23.4500
    • Exporters : 23.7500-23.8500

OPENING RATES

  • USDZAR : 18.1300
  • EURZAR : 20.3500
  • GBPZAR : 23.7300

SOUTH AFRICA

ESKOM

  • Eskom revealed that it suspended load-shedding at 01:35 on Sunday, 16 July 2023, as it has adequately replenished pumped storage dam levels.
    • The rotational power cuts will remain suspended until 08:00, after which the state-owned power utility will implement stage 2 load-shedding and increase to stage 4 at 16:00.
      • “Load-shedding was suspended at 01:35 this morning,” Eskom said.
      • “Stage 2 load-shedding will be implemented from 08:00 until 16:00 today, followed by stage 4 load-shedding until 05:00 on Monday.”
    • Eskom said that it would implement Stage 2 load-shedding from 05:00 on Monday, increasing to Stage 4 at 16:00. Source: Moneyweb
       

ANC SARB

  • The ANC said it has instructed Finance Minister Enoch Godongwana to engage the SARB on how it can manage inflation without raising interest rates.
    • Since November 2021, the central bank has raised the repo rate in ten consecutive meetings with a cumulative 475 basis points.
    • The governing party hosted a media briefing in Johannesburg on Sunday to share the outcomes of a recent national executive committee meeting.
    • ANC secretary general Fikile Mbalula said the NEC was concerned that rising interest rates were wiping out the disposable income of millions of South Africans. SOURCE EWN
       

BRICS SUMMIT

  • The ANC said it has not received an indication from the Kremlin whether Russian President Vladimir Putin will be attending the BRICS summit in Johannesburg next month.
    • Putin has a warrant out for his arrest by the International Criminal Court (ICC) for alleged war crimes over Russia’s ongoing invasion of Ukraine.
    • ANC Secretary-General Fikile Mbalula held a media briefing on Sunday to communicate the outcomes and resolutions taken by the party’s National Executive Committee (NEC) on the matter.
    • He said the NEC resolved that South Africa should rethink its subscription to international bodies.
    • “In addition, SA must investigate either withdrawing or amending our commitment to some if the international institutions that do not serve our national interest.”

GLOBAL MARKETS

Stocks
Equities mixed in early European trading.

  • US stock futures edged lower on Monday as caution dominated sentiment ahead of a busy week for corporate earnings.
    • Last week, the Dow gained 2.29%, the S&P 500 climbed 2.42% and the Nasdaq Composite jumped 3.32%.
    • Those moves came as softer-than-expected US inflation data raised hopes that the Federal Reserve may be close to the end of its current monetary policy tightening cycle.
    • But  bets of another 25 basis-point rate hike this month.
    • Upbeat earnings reports from major banks such as JPMorgan, Wells Fargo and Citigroup also lifted sentiment.
  • Investors now look ahead to more bank earnings this week including those from Bank of America, Morgan Stanley and Goldman Sachs.
    • Results are also due from Tesla, Netflix and United Airlines. This week also marks the Fed’s “blackout period” ahead of its July policy meeting. Source : Reuters

Bonds
US yields under pressure following benign inflationary conditions .

  • US 10 Year Note Bond Yield was 3.82 percent on Monday July 17, according to over-the-counter interbank yield quotes for this government bond maturity.
  • Yields lower after US Inflation data surprised to the downside.
  • The annual inflation rate in the US slowed to 3% in June of 2023, the lowest since March of 2021 and compared to 4% in May and expectations of 3.1%.
  • The slowdown is partly due to a high base effect from last year when a surge in energy and food prices pushed the headline inflation rate to 1981-highs of 9.1%.
  • Traders turning their attention to the US FOMC next week, where +  25 bps are expected.  Source : CNBC

Previous close

  • DOW +113 to  34,509
  • SP500 -4 to 4,505
  • NASDAQ  -24 to 14,113

Futures open

image: Trading economics

OVERNIGHT HEADLINES

Asian markets
Markets lower on the back of some profit taking as well lower than expected Chinese GDP data.

  • In Japan, the Nikkei 225 fell 0.09% to close at 32,391, giving back gains from the previous session.
    • Investors turned cautious ahead of the Bank of Japan’s policy meeting and the upcoming corporate earnings season.
    • Investors also assessed Japanese industrial output figures which declined more than anticipated in May.
    • Notable losses were seen from index heavyweights .
    • Meanwhile, technology stocks continued to outperform, tracking their US peers higher, on the back of weaker than expected US inflation data.
    • Japanese markets will be closed on Monday for a holiday.
       
  • In China, the Shanghai Composite dropped 1.1% to around 3,200, giving back gains from last week.
    • Investors reacted to key data showing China’s economy grew 6.3% in the second quarter, lower than the 7.3% expansion expected by analysts.
    • Meanwhile, China’s industrial production and fixed asset investments increased more than anticipated, while retail sales missed forecasts.
    • Mainland stocks gained last week amid hopes that a faltering post-pandemic recovery would prompt Beijing to offer more pro-growth policy measures.
    • Commodity-linked and financial stocks led the decline. | source Reuters

Energy
Oil prices lower after Libyan oil fields resumed production.

  • Brent crude futures fell toward $79 per barrel and US WTI crude futures fell below $75 per barrel on Monday.
    • Improved supply conditions, saw oil prices extending losses from the previous session.
    • Traders citing reports that two of the three Libyan oil fields shut last week resumed production on Saturday evening.
    • The Libyan fields bringing a total output capacity of 370,000 barrels per day back to the market.
    • Investors also cautiously awaited a slew of data releases in top crude importer China which are expected to show that the country’s post-pandemic recovery is faltering. |Source: Kitco

Metals
Precious metals lower across the board.

  • Gold prices lower at $1,950/oz on Monday, retreating from one-month highs as investors continued to assess the outlook for US Federal Reserve monetary policy.
    • Last week, the metal gained 1.6% as softer-than-expected US inflation data raised hopes that the Fed may be close to the end of its current monetary policy tightening cycle.
    • Still, the US central bank is widely expected to raise interest rates by 25 basis points this month, while traders scaled back bets of further rate increases this year.
    • Investors now await more US data and corporate earnings reports from major US firms this week for more clues on the economy.
    • Meanwhile, data showed that China’s economy grew 6.3% Q2 VS 7.3% expected. Analysts raising hopes that authorities would unleash more stimulus to support growth. |Source “ KITCO metals

Currencies
The Dollar remained under pressure on the back of lower US inflation data.

  • The US dollar remained below 100 on Monday after losing more than 2% last week and sinking to its lowest levels in fifteen months.
    • Traders citing softer-than-expected US inflation data raised hopes that the Federal Reserve may be close to the end of its current monetary policy tightening cycle.
    • Still, the US central bank is widely expected to raise interest rates by 25 basis points this month, while traders scaled back bets of further rate increases this year.
      • Market pricing also suggests that the Fed could start cutting rates next year. On the data front, data showed that US consumer sentiment hit a near two-year high in July.
    • Investors now look ahead to US retail sales, industrial production and housing data this week, as well as corporate earnings reports from major US firms.
    • The dollar held at over one-year lows against the euro and sterling, while it recouped some losses against the Australian and New Zealand dollars. Source : Forexnews

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