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Morning NOTE

18 May 2023


The ZAR continued to weaken agasint a surging Dollar, as traders continue to buy the Dollar, as debt default talking continue to drag on.


The Rand and also other major currencies losing to the ground as debt talks drag on.

  • In addtion, US yields continue to creep higher as regional centrla bank governors continue to push for even higher rates.
    • The US10YT higher at 3.58%, vs 3.5% in the previous session.
      • This seen as the primary reason for the Dolalr rally.
      • From Chicago to Cleveland, governors continue to call for higher rates all but ignoring the lagging effect of the last 500 bps in hikes.
    • In contrast the Bank of England’s Andrew Bailey, announced that the BOE could be at the end of its hiking cycle as the bank also considered the size and pace of previous hikes.
      • Bailey noted that the full effect of previous hikes are not yet seen in the economy.
      • It was completely different approach to the American central bank govenors, who continues to ignore the 18 month lagg in hike.
      • Currently US nominal rates (5.25%) are higher than US CPI (4.9%)
  • With Biden and Mccarthy announicng that a deal on the debt-ceiling is all but concluded, the attention once again turns to US interest rates.

Markets this morning

  • USD 102.96
  • SP500 4160
  • EURUSD 1.0827
  • US10YT 3.58%
  • Gold 1977

Risk assets are ignoring the rates as rally as the SP500 and Nasdaq all had break out session to trade higher.

However FX feeling the brunt of the Dollar rally.

Data This week




Market Movement Today:

  • The ZAR continues to weaken as the Dollar re-asserts itself following a rise in US yields.
    • US yields finding support and drifting higher as regional Fed governors continue to call for rising interest rates, even though inflation continues to trend down.
    • The US 10YT at 3.58%.
    • The local unit already on back foot following the recent Russian weapons debacle as well as the Eskom energy crises.
      • President Ramaphosa’s comments on “ South Africans would know if there will be total grid failure” was most alarming to markets.
    • On the flipside, the JSE continues to power ahead with the index rallying sharply after Risk assets rallied in New York and Rand hedge stocks pushed the index higher.
  • The ZAR however tracking major currencies lower, and the fragility of the local unit making it an easy SELL.
  • US interest rates once again the flavour of the month, and we expect this to continue to place pressure on the local unit.
    • NB: the DATA does not support additional rate hikes after Bank of England governor made it clear that the cumulative effect has not yet been felt.
    • But certain governors continue to call for more hikes. The only exception being Atlanta’s Bostic who recently called for a pause.  
  • For now, the Dollar rally continues and we expect a weaker ZAR in the short term, but remain steadfast in our view that the ZAR is undervalued
    • And we expect a retracement Once the US ends their hiking cycle
    • (NB: many leading economists feel the US is already past the point of no return and any additional hikes would be suicidal and almost certainly induce a recession).

Markets this morning

  • USD  102.96
  • SP500 4160
  • EURUSD 1.0827
  • US10YT 3.58%
  • Gold 1977

Trade this session BUY USDZAR ON DIPS

Expected Ranges:

  • USDZAR : Expect a range 19.1200-19.4200
    • Importers : 19.2200-19.1200
    • Exporters : 19.3200-19.4200
  • EURZAR : Expect a range of 20.7500-21.0200
    • Importers : 20.7000-20.6000
    • Exporters : 20.8000-20.9000
  • GBPZAR : Expect a range of 23.8900-24.1900
    • Importers : 23.9900-23.8900
    • Exporters : 24.0900-24.1900


  • USDZAR : 19.3000
  • EURZAR : 20.9000
  • GBPZAR : 24.0600


De Ruyter fall out

  • The Public Enterprises Minister said any good work that the former Eskom CEO, André De Ruyter, did during his three-year stint at the power utility would be overshadowed by how he ended his tenure.
    • The Minister of Public Enterprises Pravin Gordhan labelled former Eskom CEO André de Ruyter a “know-it-all” whose behaviour since his resignation was egotistical and arrogant.
    • Gordhan was scathing in his assessment of De Ruyter in Parliament on Wednesday, following his widespread corruption allegations about the beleaguered power utility – first in a televised interview, and now contained in a book.
    • He told Parliament’s standing committee on public accounts that he also never sanctioned an off-the-books private intelligence gathering operation by De Ruyter.
    • He added, De Ruyter is not a whistleblower, that adding De Ruyter has let himself, Eskom & this country down very badly.  Ewn
  • President Cyril Ramaphosa said South Africans would be the first to know when the power grid collapses.
    • `Ramaphosa said government had several scenarios should the unthinkable happen, like a complete grid collapse.
    • He also said load shedding was essential in preventing a total blackout.
    • Along with South Africa’s relations with Russia, Ramaphosa was also asked to respond to questions about the power crisis and his much-talked-about Electricity Minister, Dr Kgosientsho Ramokgopa. EWN

Rand hedsge stocks

  • The significant devaluation of the rand against the US dollar over the past two years has placed renewed focus on the capital protection so-called rand hedge stocks offer South African investors.
  • These companies earn most of their profits in offshore markets, and therefore should provide protection against domestic developments such as a significant exchange rate depreciation.
  • During a recent radio interview, two investment specialists discussed the impact a long-term undervalued rand would have on investments.
  • As expected, both stated that rand hedges should protect South Africans against capital loss, but one also highlighted that there are still many shares on the JSE that are “dirt cheap”. Money web



  • President Joe Biden and House Speaker Kevin McCarthy both indicated confidence late on Wednesday that the US government will not default on its debt.
  • On Wednesday, the Dow rose 1.24%, the S&P 500 gained 1.19% and the Nasdaq Composite jumped 1.28%, with nine of the 11 S&P sectors finishing higher led to the upside by financials, energy and consumer discretionary.
  • US stock futures held steady on Thursday after a strong rally during Wednesday’s regular session, as growing optimism that the debt ceiling crisis would be resolved and positive corporate results lifted sentiment.
    • Futures contracts tied to the three major indexes were all trading near breakeven.
  • On the corporate front, Western Alliance Bancorp surged 10.2% after reporting a deposit growth in the current quarter,
    • Tesla climbed 4.4% after Elon Musk announced that the company will begin advertising its cars.
    • Investors now await Walmart’s earnings and a slew of economic data on Thursday.


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


  • DOW +408 33,420
  • SP500 +48 to 4,158
  • NASDAQ + 157  to 12,500 (cash)  Futures 13,591

Equity futures
  image: Trading economics


The US dollar

  • The dollar index traded higher near 103 on Thursday after rising for two straight sessions.
    • It was  underpinned by growing optimism that the US government would strike a deal on the debt ceiling and avoid a default.
    • President Joe Biden and House Speaker Kevin McCarthy both indicated confidence late on Wednesday that the US government will not default on its debt after a months-long standoff.
    • Hawkish remarks from Federal Reserve officials this week also supported the greenback.
    • In the latest commentary, Chicago Fed President Austan Goolsbee said it was “far too premature to be talking about rate cuts,”
    • while Cleveland Fed President Loretta Mester said rates were not yet at a point where the central bank could hold steady due to stubborn inflation.
    • Investors now look ahead to weekly jobless claims to gauge the strength of the labor market. FX news

Asian markets  higher on the back of another stellar performance.

  • In Japan, the Nikkei 225 Index rallied 1.2% to 30,500 on Thursday.
    • The index rising for the sixth straight session to its highest levels in twenty months as strong domestic earnings and a weak yen boosted the outlook for Japanese stocks.
    • Japanese shares also tracked a sharp rally on Wall Street overnight as investors remained hopeful that a US default would be averted.
    • Meanwhile, investors reacted to data showing Japanese exports growth slowed in April, while imports declined more than expected.
    • Technology stocks led the rally, with gains from Tokyo Electron (3.4%), Advantest (5.6%) and Recruit Holdings (3%).
  • In China, the Shanghai index rose 0.7% to above 3,300, ending a two-day decline, underpinned by a strong rally in technology stocks.
    • Upbeat global sentiment also aided local markets as investors remained hopeful that the US government would strike a deal on the debt ceiling and avoid a default.
    • Meanwhile, investors continued to assess the economic outlook in China after a series of data pointed to a challenging recovery path. Reuters

Crude oil

  • US WTI crude oil ralied to $72.5 /bl. Prices finding some resistance after the EIA data showed that US crude inventories unexpectedly jumped by 5.04 million barrels last week.
    • It was the most in twelve weeks due to another release from the Strategic Petroleum Reserve.
    • Still, US gasoline inventories dropped more than expected as demand surged to its highest since 2021.
    • Meanwhile, the US oil benchmark surged nearly 3% on Wednesday on demand optimism and hopes that the US government would avert a default.
    • Global oil demand is expected to exceed supply by 2 million barrels per day in the second part of 2023 with China accounting for a substantial portion of it. Gulf energy news


  • Gold held below $1,990/oz after declining for two straight sessions. Bullion under pressure due to the rally in the Dollar.
    • Dollar gains continuing on the back of  the US debt ceiling negotiations and the direction of Federal Reserve monetary policy.
    • President Joe Biden and House Speaker Kevin McCarthy both indicated confidence late on Wednesday that the US government will not default on its debt after a months-long standoff.
    • Hawkish central bank remarks this week also weighed on gold prices. Kitco metals

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