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Morning NOTE

18 November 2022


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


  • The Rand weakened to 17.5400 on the back of hawkish Fed comments as well as news of an extension of parliament to discuss CR’s Phala- Phala troubles.
    • The session dominated by Risk-off events the local unit weakened from 17.2000 to 17.5400 (a loss of 1.98%).
    • However, post the press conference by noted hawk Jimmy Bullard, the market recovered as bargain hunters stepped in and the ZAR gained to 17.3500.
    • The SP500 at once stage dropping from 3979 to 3905, before recovering to 3950.
      • Risk assets rebounding as the 10YT traded flat at 3.74%.
      • And the Dollar remained under pressure at 106.50.
  • The key aspects is that US CPI and PPI have both printed lower, and this implies the FED’s restrictive policy appears to be working.
    • With JP Morgan calling for a mild recession in 2023, that will likely curtail consumer spending
      • and also inflationary pressure from the demand side, it seems unlikely that the Fed will continue with 75 bps hikes.
      • For now, US jobs, Retail sales all supportive of more FED hikes.
  • A slower FED, will be Risk supportive and the ZAR likely to benefit in this environment, provided the SARB keeps pace.

More inflation woes:

  • Earlier this morning,  Japanese inflation hit 32 year highs , with CPI at 3.7% vs 3.0% previous
  • The rate remains above BOJ’s 2% target and the bank likely to monitor conditions and could be forced to move from their zero rate policy .

Significant Market Data:






  • The ZAR opening stronger after Risk off session that saw the local unit, test the extremes of the week’s range.
    • Risk assets took a pounding on the back of  FED governor Jimmy Bullard’s comments with the ZAR testing 17.5400, before recovering.
    • Bullard called for higher rates to set the terminal rate at 5.-7%, higher than market expectations.
    • However markets rebounded as inflation data continues to print lower and the 10YT remains anchored below 4% at 3.76%
    • This morning we opening at 17.3500, which the middle of yesterday and the week’s range.
      • With no data of significance, expect another RANGE BOUND SESSION.
    • Trade :  TRADE THE RANGE 17.2500-17.4500 
    • Session sentiment likely to be range traded .

Expected Ranges

  • USDZAR :  Expect a range 17.2500-17.4300
    • Importers 17.3100-17.2500
    • Exporters 17.3700-17.4300
  • EURZAR :  Expect a range of 17.8800-18.0900
    • Importers 17.9500-17.8800
    • Exporters 18.0200-18.0900
  • GBPZAR :  Expect a range of 20.4700-20.7700
    • Importers 20.5700-20.4700
    • Exporters 20.6700-20.7700


  • USDZAR 17.3500
  • EURZAR 17.9900
  • GBPZAR 20.6400


  • 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


  • 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.


  • 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.


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


  • 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


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