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Morning NOTE

GOOD MORNING

The ZAR continues to trade both sides of the range as traders remain concerned about the US debt Ceiling talks.

OPENING RATES

• USDZAR : 19.1100
• EURZAR : 20.7600
• GBPZAR : 23.8300

SOUTH AFRICA

• President Cyril Ramaphosa said on Tuesday that Russian President Vladimir Putin and Ukraine’s Volodymyr Zelenskiy had agreed to meet a group of African leaders to discuss a potential peace plan for the conflict.
  • Details of the plan have not been publicly divulged, although Ukraine’s stated position for any peace deal is that all Russian troops must withdraw from its territory.
     
  • In addition, Finance minister Enoch Godongwana maintained that SA DID NOT SELL ANY ARMS TO RUSSIA.
    • The Minister of Finance said Treasury took the matter up in January following claims made by the US’ treasury secretary but found that no sale of weapons to Russia was approved.

• Strike season and public sector wages.
  • SA will spend an additional R37.4 billion to fund public sector salary increases this year.
    • It was an increase of R730 billion to the wage bill and surpassing a level Finance Minister Enoch Godongwana once thought would be reached in 2025.
    • “The recent wage agreement has placed upward pressure on the wage bill.
  • This means that in the current financial year, the National Treasury must identify over R37.4 billion in savings to cushion the blow on the fiscal framework,”
    • Godongwana said on Tuesday afternoon while delivering his budget vote in parliament. Moneyweb

• President Cyril Ramaphosa and former president Jacob Zuma are set to square off in the Johannesburg High Court on Wednesday over the private prosecution that Zuma has instituted against Ramaphosa. News24
  • Zuma has accused the president of being an accessory after the fact.
  • This is in connection with the claims against state advocate Billy Downer and journalist Karyn Maughan.
  • In January, the Johannesburg High Court granted Ramaphosa an interim interdict halting the proceedings.
  • This is pending an application that is set down for hearing on Wednesday for a final interdict. EWN

GLOBAL MARKETS

Stocks

• On Tuesday, the Dow tumbled 1.01%, the S&P 500 dropped 0.64% and the Nasdaq Composite lost 0.18%, with nine out of the 11 S&P sectors finishing lower.
  • US stock futures rose slightly on Wednesday as investors awaited updates on the negotiations between President Joe Biden and congressional leaders over the US debt ceiling.
  • Futures contracts tied to the three major indexes were all up about 0.1%.
     
• Those losses came as a disappointing quarterly revenue and a weak full-year forecast from Dow member Home Depot weighed on investor sentiment.
  • Meanwhile, markets are anticipating developments on the US debt limit negotiations.
  • Treasury Secretary Janet Yellen reiterating her warning that the government needs to raise the limit immediately as the country faces the possibility of a default as early as June 1.
  • Investors also look ahead to US housing starts and building permits data on Wednesday, as well as more retail earnings reports. Bloomberg

Bonds
The yield on the US 10-year Treasury rose past the 3.5% mark in mid-May.

• It was the highest in over two weeks amid the persistent unease over Washington’s debt ceiling stalemate.
  • In the meantime, investors also gauged signals from Federal Reserve members and the latest economic data for insights on the central bank’s policy outlook.
  • Multiple policymakers suggested that the fight against inflation in the US economy is far from over, dismissing bets of an incoming dovish pivot.
• At the same time, April retail sales data missed expectations but still bounced back sharply from the contraction in the previous month.
  • Earlier, The Chicago Fed President said it was “far too premature to be talking about rate cuts,”
    • while Cleveland ‘s Loretta Mester said rates were not yet at a point where the central bank could hold steady due to stubborn inflation.

Yesterday

• DOW -336 to 33012
• SP500 -26 to 4109
• NDX   +20 TO 13447

  image: Trading economics

OVERNIGHT HEADLINES

The US dollar

• The US dollar steadied around 102. as traders awaited updates on the negotiations over the US debt ceiling.
  • President Joe Biden and House Speaker Kevin McCarthy edging closer to a deal late on Tuesday, though a consensus was not reached.
  • Biden has maintained that raising the debt ceiling is non-negotiable, while McCarthy continued to push for spending cuts to be tied with the debt limit increase.
    • Data on Tuesday also showed that US consumer spending remained robust in April, pouring cold water on expectations that interest rate cuts are coming soon.
    • Chicago and Cleveland Fed Presidents said rates were not yet at a point where the central bank could hold steady due to stubborn inflation.
    • Investors also look ahead to US housing starts and building permits data on Wednesday for more clues about the economy. Forex news

Asian markets mixed as markets try to digest the weaker than expected US economic data vs rising yields on the back of the Debt ceiling impasse.

• In Japan, the Nikkei 225 climbed 0.84% to close above the key 30,000 mark for the first time since September 2021, as strong domestic earnings and a weak yen boosted Japanese assets.
  • Investors cheered better-than-expected economic data.
  • Official data showed that Japan’s economy expanded more than expected in the first quarter due to robust consumption and a surprise rebound in capital expenditures.
  • Technology stocks led the charge, with strong gains across the board.
     
• In China, the Shanghai Composite fell 0.5% to 3,275, sliding for the second straight session.
  • Traders citing concerns about the strength of China’s post-pandemic recovery continued to weigh on sentiment.
  • Data released on Tuesday showed that the country’s industrial production, retail sales and fixed asset investment all came in below forecasts in April, pointing to a challenging recovery path.
  • Along with weak inflation, trade and manufacturing data, the latest figures put further pressure on authorities to offer more fiscal and monetary stimulus to boost China’s economy. REUTERS

Crude oil

• US WTI crude fell toward $70/bl, extending losses from the previous session.
  • Prices under pressure as weaker-than-expected economic data from the US and China hurt the demand outlook in the world’s two biggest oil consumers.
    • Oil prices also declined after industry data showed that US crude inventories unexpectedly increased by about 3.6 million barrels last week, defying forecasts for a 900,000 barrel drawdown.
  • Traders also nervous while awaiting development on US debt ceiling negotiations.
    • Treasury Secretary Janet Yellen reiterated her warning that the government needs to raise the limit immediately to avoid a possible default in June.
    • Supporting prices were the IEA THAT upgraded its global oil demand forecast by 200,000 BPD and said it expects tighter market conditions in the second half of the year, according to its May report. Gulf energy news

Gold

• Bullion held below $2,000/oz on Wednesday after losing more than 1% in the previous session.
  • Concerns around the debt ceiling talks sending US yields higher and in turn the Dollar.
  • The metal trading at $1988/oz as it is weighed down by the dollar’s strength as investors assessed the likely outcome of the US debt ceiling negotiations and the direction of Federal Reserve monetary policy.
  • The dollar was also lifted on Tuesday by strong US consumer spending data and hawkish remarks from Fed officials, putting downward pressure on bullion.
    • The Chicago Fed President said it was “far too premature to be talking about rate cuts,”
    • while Cleveland ‘s Loretta Mester said rates were not yet at a point where the central bank could hold steady due to stubborn inflation. Kitco metals report