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Morning NOTE

GOOD MORNING

The ZAR rebounded in early trading to breach the R18/$ after briefly trading above R18.20/$ on Monday.

OPENING RATES

• USDZAR 17.9800
• EURZAR 20.2300
• GBPZAR 23.5400

SOUTH AFRICA

RATING AGENCIES

• Fitch affirmed South Africa’s long-term foreign and local currency debt ratings at BB- with a stable outlook.
  • Fitch said South Africa’s credit rating was constrained by low real gross domestic product (GDP) growth that was hampered by power shortages, a high level of inequality, and a high government debt-to-GDP ratio.
  • But it said the ratings were supported by a favourable debt structure, as well a credible monetary policy framework.
• In response, the government said it was implementing urgent measures to reduce load shedding in the short term and transform the sector through market reforms to achieve long-term energy security.
  • The country saw Stage 6 load shedding return over the past week, and there are concerns that if this continued, South Africa wouldn’t be able to achieve more favourable ratings.
  • Poor power supply was flagged once again as an obstacle to growth. Source : EWN

Eskom

• Eskom announced late on Monday that its former chief operating officer (COO) Jan Oberholzer is leaving the utility at the end of July. 
  • This after the utility announced last month that he was appointed on a two-year fixed-term contract to specifically oversee the recovery of three damaged units at Kusile and the steam generator and life-extension project at Koeberg.
  • These two projects are critical to government’s energy crisis plan to end load shedding.
  • On the same day, Electricity Minister Kgosientsho Ramokgopa expressed deep concern about the progress at Koeberg.
  • Oberholzer retired from the COO position at the end of April after Andre de Ruyter
  • The board decided to scrap the COO position. Source :  Moneyweb

SARB MPC

• SARB to keep rates steady at 8.25% on July 20 – Poll
• Economists say financial conditions have tightened enough as the SARB has added a cumulative 475 basis points since November 2021.
• The SARB is expected to keep its repo rate unchanged next week as inflation has slowed markedly and will moderate further in coming months as past rate hikes filter through the economy, a Reuters poll of economists found on Thursday.
• In a survey conducted July 6-12, 12 of 21 economists said the SARB will keep rates steady at 8.25% on July 20.
• The remaining nine said rates will be hiked 25 bps.
• NB: FRA markets however pricing a 25 bps hike with the 1×4 trading at 8.62%.  source moneyweb

GLOBAL MARKETS

Stocks

Markets closing higher in New York ahead of major earnings reports.

• US stocks traded higher on Monday, with the Dow Jones up almost 100 points.
  • The S&P 500 also adding 0.3% and the Nasdaq rising 0.6% as traders brace for a big week of corporate earnings.
  • Results from mega banks, Bank of America, Morgan Stanley, Goldman Sachs due as well as Tesla and Netflix.
  • On the data front, the calendar is soft this week, although traders will keep an eye on retail sales, industrial production, housing starts and building permits.
  • Also, there are no major speeches from Fed officials scheduled for the week due to the “blackout period” ahead of the FOMC monetary policy decision next week.

Bonds

Bond yields stabilised after recent declines ahead of next week’s FOMC.

• The yield on the US 10-year Treasury note was around 3.78%, close to low levels not seen since late June.
  • Traders weigh the economic and monetary policy outlook.
  • Bets for a 25bps hike in the Fed funds rate next week currently stand at 96% but investors remain divided on the need of further increases.
  • However, several officials including Chair Powell and Governor Waller have been advocating for another increase in borrowing costs beyond July.
  • Bets for a September increase currently stand at 12% and for November at 24%.
  • On the data front, the calendar is soft this week, although traders will keep an eye on retail sales, industrial production, housing starts and building permits.
     
• NB: There are no major speeches from Fed officials scheduled for the week due to the “blackout period” ahead of the FOMC monetary policy decision next week. Source :  Bloomberg

Yesterday’s close

• DOW +76 to 34,585
• SP500 +17 to  4,522
• NASDAQ  +131 to 14,244

Futures open

image: Trading economics

OVERNIGHT HEADLINES

Asian markets

Eastern markets mixed ahead of the BOJ and US FOMC next week.

• In Japan, the Nikkei 225 Index rose 0.32% to close at 32,494 as Japanese markets return from a holiday-extended weekend, with technology stocks leading the advance.
  • Investors also look ahead to key economic data later in the week, including Japanese trade balance and consumer price index reports. Gains were mostly in the technology sector.
• In China, the Shanghai Composite fell 0.37% to close at 3,198, sliding for the second straight session, with all sectors participating in the decline.
  • On Monday, 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.
  • The country’s sluggish post-pandemic recovery prompted economists to downgrade their full-year growth forecasts for China. Source : Reuters

Energy

Energy markets range trading.

• Brent crude futures remained near $79/bl on Tuesday and US WTI crude futures steadied above $74/bl on Tuesday amid signs of tightening US oil supplies.
  • The data from the Energy Information Administration showing US shale oil production is expected to drop to nearly 9.4 million barrels per day in August, the first such decline since December.
  • Meanwhile, oil prices lost nearly 2% in the previous session as weaker Chinese economic growth raised concerns about demand in the world’s top crude importer.
  • The country’s economy grew by a lower-than-expected 6.3% in the second quarter amid slowing demand from both domestic and international sources.
  • Additionally, two of the three Libyan oil fields shut last week resumed production on Saturday evening, bringing a total output capacity of 370,000 barrels per day back to the market. Source : Gulf news

Metals

Precious metals higher at the expense of a falling Dollar.

• Gold rose toward $1,960/oz on Tuesday, approaching its highest levels in a month amid a general dollar weakness.
  • Prices supported  as easing US inflation raised hopes that the Federal Reserve is 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, the European Central Bank and the Bank of England are expected to tighten further in the coming months to bring down inflation.
  • Elsewhere, data showed that China’s economy grew 6.3% in the second quarter, lower than the 7.3% expansion expected by analysts. Source : Kitco

Currencies

The dollar continues to decline.

• The dollar index held below 100 on Monday after losing more than 2% last week and sinking to its lowest levels in fifteen months.
  • Traders citing 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.
  • 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 FX news