View this email in your browser

Morning NOTE

GOOD MORNING

The ZAR weakened on the back of hawkish comments from Fed governors who raised the terminal Fed funds to between 5 & 7 %.

OPENING RATES

• USDZAR 17.3500
• EURZAR 17.9900
• GBPZAR 20.6400

SOUTH AFRICA

• Unions reject government’s 7.5% public servants’ wage offer
  • The government offered comprises 3% pensionable and 4.5% non-pensionable funds.
  •  The government said on Friday its wage offer of 7.5% for public servants will come at a cost of R31 billion to the fiscus.
  • This is the same offer from government since the beginning of negotiations.
    • But none of the trade union federations is not having it.
  • The latest offer follows an announcement of a national shutdown by trade union federations Cosatu, Saftu and Fedusa next week. EWN

 
Eskom loadshedding stage 4.

• Eskom indefinitely implemented stage 4 load shedding “until further notice” from Friday morning.
• The power utility cited breakdowns – among others – resulting in decimated generation capacity for its latest power cut notice.
• “Breakdowns amounting to 17 056MW of generation capacity, low pumped storage dam levels and lack of diesel are the reasons for the increase in load shedding,” said Eskom. News24
   
• Eskom Tenders declared unlawful by the High Court in Pretoria.
• In a judgment handed down on Thursday, Judge Anthony Millar ordered Eskom to conduct a fresh tender process.
  • Tenders worth about R16 billion awarded by Eskom in October 2021 to Actom and Steinmuller Africa .
  • It was to provide maintenance and outage repair services at its 15 coal-fired power stations have been set aside.  Moneyweb

GLOBAL MARKETS

Stocks:

• Yesterday, the Dow shed 0.02%, the S&P 500 lost 0.31% and the tech-heavy Nasdaq Composite dropped 0.35%.
  • Markets nervous after Fed officials, with St. Louis Fed President James Bullard saying “the policy rate is not yet in a zone that may be considered sufficiently restrictive.”
  • He also suggested that the federal funds rate could reach the 5% to 7% range as authorities fight inflation, higher than what is currently factored in by the market.
     
• US stock futures fluctuated on Friday as investors digested more earnings reports, while weighing hawkish remarks from the Federal Reserve.
  • Futures contracts tied to the three major indexes shifted between small gains and losses.

Bonds:

• The yield on the US 10-year Treasury note moved towards 3.8%, bouncing sharply from an over one-month low of 3.7% hit in the prior session as uncertainty regarding the Fed’s rate path spooked bond investors.
  • St. Louis Fed President James Bullard and San Francisco Fed President Mary Daly poured cold water in expectations of a sooner-than-expected pause in the central bank tightening cycle.
  • Mixed signs from the US economy, with retail sales data signalling incredible resilience from US consumers despite macro headwinds, added to uncertainty about the Fed’s next move.

YESTERDAY

• The Dow  declined 7.51 to 33,546
• The SP500 fell 12 to 3,946
• The Nasdaq  fell 38 points 11,144

•  Image: Trading Economics

OVERNIGHT HEADLINES

• Asian markets lower after Bullard’s comments and also a spike in Japanese inflation that might prompt the BOJ to change course.
  • In Japan, the Nikkei 225 fell 0.11% to close at 27,900 after caution dominated sentiment after US Fed officials signalled that they are ready to tighten policy further to stamp out inflation.
    • Japanese shares also wobbled after Bank of Japan Governor Haruhiko Kuroda stressed the need to maintain ultra-loose monetary policy to support the economy,
      • This after data showing annual core consumer prices in the country surged to a 40-year high in October.
         
• Japan Inflation Rate Highest in Near 32 Years.
  • The annual inflation rate in Japan climbed to 3.7% in October 2022 from 3.0% a month earlier.
  • The highest print since January 1991, amid high prices of food and raw materials as well as persistent yen weakness.
  • Core consumer prices increased by 3.6% yoy, the most since February 1982, higher than forecasts of 3.5% and above the Bank of Japan’s 2% target for the seventh straight month. Reuters
     
• The US dollar stabilized around 106.5 on Friday, supported this week by strong US retail sales data and hawkish remarks from Federal Reserve officials who pushed back against expectations of a policy shift.
  • Comments from St. Louis Fed President James Bullard said that the policy rate is not sufficiently restrictive and suggested that it could reach the 5% to 7%.
    • This was higher than what the market is currently pricing.
  • Markets are betting that the Fed would deliver a more moderate 50 basis point rate hike in December, and a series of 25 basis point increases next year.
  • Still, the dollar index remains close to three-month lows after facing heavy selling pressure recently due to softening US inflation data.

• Brent crude oil fell below $90/bl and were set to end the week sharply lower as a weakening demand outlook overshadowed supply-side concerns.
  • The international oil benchmark is down about 6% so far this week, on demand worries that monetary tightening could induce a  global recession.
• Adding to gloom was James Bullard who suggested that the federal funds rate could reach the 5% to 7% range as authorities fight inflation.
• This was, higher than what the market is currently pricing.
• Resurgent Covid outbreaks in China also dashed reopening hopes and clouded the demand outlook in the world’s top crude importer. Gulf energy news
   
• Gold prices range bound around the  $1,760/ oz level .
  • Prices however lower following, hawkish US Federal Reserve messaging which suggested more rate hikes than markets anticipated, pushing back against expectations of a Fed pivot.
  • Most notably, St. Louis Fed President James Bullard said that the policy rate needs to be much higher to stamp out inflation.
    • This is higher than what the market is currently pricing.
  • While gold is widely considered as a hedge against inflation and economic uncertainty,
    • higher interest rates raise the opportunity cost of holding non-yielding bullion. Kitco metals