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Morning NOTE

GOOD MORNING

The ZAR traded weaker on Friday , following a relief rally on Thursday , after investors grappled with inflationary concerns.

OPENING RATES

• USDZAR 18.2400
• EURZAR 17.7700
• GBPZAR 20.5800

SOUTH AFRICA

• ESKOM

  • Eskom and loadshedding likely to continue for at least 18 months according the the group’s COO.
    • On Monday, Eskom said it has suspended Stage 2 load shedding from midnight on Sunday, but qill implement it between 4pm until midnight from Monday to Wednesday.
    • “The load shedding is required to help manage emergency generation reserves during the evenings,” the utility said in a statement. IOL

• RANDWATER  crises

  • Government has been called on to react and step in immediately as the water system in Gauteng takes strain, with fears of a total collapse.
    • During the weekend, Joburg Water announced that part of its water system had crashed, resulting in empty reservoirs.
    • Joburg Water will be meeting with the ministry of water and sanitation on Monday to discuss the crisis.
      • Professor Anthony Turton from the Centre for Environmental Management at the University of the Free State said that too much water was being lost.
      • He said , “Some parts of the country loses as much as 60% of the water.
    • In Gauteng, it’s a little below 50% of the water that’s lost.
      • So for every 100 litres of water that Rand Water puts in the pipe, only 50% comes out the other side and then that 50% is not enough for everybody.” EWN

• TRANSNET

  • The Transnet strike showing no signs of ending.
    • Earlier, The South African Transport and Allied Workers Union (SATAWU) has rejected Transnet’s 6% wage offer.
    • Satawu and the United National Transport Union (Untu) have been holding out for a 13% wage increase. 
    • The unions have also received support from labour federations the Congress of South African Trade Unions (Cosatu) and the South African Communist Party (Sacp). IOL

GLOBAL MARKETS

Stocks:

• Stocks futures trading higher in Asian trading following the large swings (up and down) that occurred last week following the release of US inflation data.
  • US inflation higher than expected and all but confirming the FED’s narrative of “ RATES HIGHER FOR LONGER” .
  • Investors are now focussed on earnings reports from major companies this week.
• Key signals will be upcoming earnings reports and how corporate America is coping up with current macro headwinds.
  • In the US major banks, consumer and industrial firms are set to report third quarter earnings this week.
  • Heavyweight technology names are also releasing quarterly reports, including Tesla, Netflix and Snap. CNBC

Bonds:

• The US 10-year yield, moved back towards the 4% mark closing at 3.97%, just shy of levels not seen since October 2008.
  • US year-ahead inflation expectations increased for the first time since March, and a hotter-than-expected US inflation reading earlier this week slashed any hopes of a policy pivot.
  • In addition, the FOMC minutes showed, policymakers were committed to pushing rates to a restrictive level until there were clear signs that inflation was easing.
    • This even with the risk of a sharp economic slowdown.
  • In addition, the market movement came along with a sell-off in gilts markets as recent actions by Prime Minister Truss failed to boost investors’ confidence.
• In the UK, PM Liz Truss fired Kwasi Kwarteng and replaced him with Jeremy Hunt, as Chancellor of the Exchequer ( i.e. Finance minister ).
  • The yield on Britain’s 10-year Gilt bounced back above 4.3%, as recent actions by Prime Minister Truss were not enough to boost investors’ confidence.
  • The PM announced a U-turn on the government’s plan to scrap the planned rise in corporation tax from 19% to 25% next April, which will end up raising £18 billion per year.
  • Also, on Friday, the BOE’s emergency bond-buying scheme ended.
  • The plan was used to cover pension funds caught up in the market chaos sparked by the tax cuts announced last month. Bloomberg

ON FRIDAY

• The Dow fell 403 to 29,634
• The SP500 fell 86 to 3,583
• The Nasdaq fell 327 to 10,321

•  Image: Trading Economics

OVERNIGHT HEADLINES

• Asian markets mixed with some markets tracking US futures higher in early trading and others squarely focussed on global inflation.
  • In Japan , the Nikkei 225 dropped 1.16% to close at 26,776, giving back gains from the previous session.
    • The index continues to be weighed down by heavy losses on Wall Street amid fears that further US Federal Reserve monetary tightening could tip the economy into recession.
    • Chinese President Xi Jinping also signaled no policy change related to its strict Covid strategy and housing market, two main risk factors weighing on its economy and affecting the wider Asia-Pacific region.
      • Technology firms led the decline, with notable losses from SoftBank Group (-1.8%).
  • In Australia, the S&P/ASX 200 Index fell 1.4% to close at 6,664 and, resuming its slide and tracking Wall Street losses on Friday.
    • The expectations that the US Federal Reserve will continue raising interest rates aggressively sparked concerns about a global economic slowdown.
  • Recession concerns weighed on commodity prices and local mining and energy firms, with sharp losses from BHP Group (-2.3%), Rio Tinto (-2.6%).
    • Other index heavyweights also declined, including CLS Ltd (-1.3%), Macquarie Group (-4.2%), Newcrest Mining (-1.8%), Telstra (-1.3%) and Wesfarmers (-1.2%). | source : Reuters
       
• The US dollar eased to around 113 on Monday after gaining nearly 1% in the previous session.
  • Traders reassessed the outlook for inflation and interest rates in the US.
    • The Dollar jumped on Friday after a University of Michigan survey showed US year-ahead inflation expectations increased for the first time in seven months.
    • The data prompted Federal Reserve officials to signal readiness to raise interest rates higher than previously planned.
    • St. Louis Fed President James Bullard signalling openness to hike rates by 75 basis points at each of the next two meetings in November and December.
    • Meanwhile, the dollar weakened against the sterling on Monday on expectations that the UK may reverse more of its unfunded tax cuts.
    • The Buck however holding steady against the yen as sharp currency moves raised speculations about another intervention from Japanese authorities. | source :  FX news
       
• US WTI crude oil prices rose above $86/bl, recouping some losses after falling nearly 8% last week.
  • Analysts attributed the jump to bargain hunting, a lower dollar and hopes for more policy support from the Chinese government.
  • Meanwhile, fears of a global economic slowdown and a weakening demand outlook continued to hang over markets.
  • US Fed officials indicated readiness to raise interest rates higher than previously planned to get ahead of persistently high inflation.
  • Top crude importer China also signalled on adjustments to its strict zero-Covid policy that has dragged on its economy and energy demand. |source : Gulf energy news
     
• Gold prices rose toward $1,650/oz on Monday, recouping some losses from last week on technical buying.
  • Bullion also benefiting from a lower Dollar after US yields slipped below 4.00% on the US10YT.
  • Still, persistently high inflation and bets on further monetary tightening kept downward pressure on bullion prices.
  • Higher inflation and a stronger demand for the dollar on the back of rising interest rates continues to weight on gold.|  Source : Kitco metals