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Morning NOTE

GOOD MORNING

The ZAR opening the week on the backfoot near weakest levels on the back of major central bank decisions as well as Eskom.

OPENING RATES

• USDZAR 17.6800
• EURZAR 17.6500
• GBPZAR 20.1700

SOUTH AFRICA   

• Eskom’s constrained electricity system is almost on its knees.
  • The utility is now implementing Stage 6 blackouts.
    • It says this is due to the tripping of generating units at Kusile and Kriel power stations.
      • Stage 6 was implemented at 4am on Sunday.
    • The escalation means the utility is removing 2,000 megawatts of demand from the grid but Eskom will continue to operate on a thin margin.
      • The utility is appealing to the public, to help conserve electricity.
    • Eskom is set to hold a media briefing on Sunday at 10am, to update the public on the way forward.  MONEYWEB
• President Cyril Ramaphosa on Friday agreed to cooperate closely with US President Joe Biden on health, security and climate.
  • but warned against punishing African nations for maintaining ties with Russia.
  • The Biden administration has put a new focus on Africa after being taken aback by the reluctance of some nations to condemn Russia over its invasion of Ukraine, which has triggered sweeping Western sanctions.
  • Ramaphosa enjoyed unusually warm treatment from Biden, who walked him back to his motorcade at the White House.  NEWs24
• Following an urgent board meeting while Stage 5 load shedding was biting on Saturday 17 September.
  • Eskom will on Monday start to urgently procure additional energy from existing independent power producers.
  • This announcement was made during an emergency media briefing by Eskom group chief executive André de Ruyter on Sunday morning.
  • De Ruyter said he hopes to access about 1 000MW from existing independent power producers like Sasol and Sappi and hopes to have it online within a week or two. Money web

GLOBAL MARKETS

Fed week

• The market expects that interest rates will  rise as the Fed battles inflation.
  • Currently +75 bps is priced in.
• Earlier, Fed Vice Chair, Lael Brainard, said higher rates likely to remain there for some time to provide confidence that inflation is moving down towards the central bank’s 2% target.
  • She added that at some point in the tightening cycle, the risks of going too far would become more obvious.
• Fed fund futures implied investors were pricing in a more than 81% chance of another supersized 75 basis-point interest rate hike in September. source: Federal Reserve

Stocks:

• US stock futures edged lower on Monday as investors braced for this week’s Federal Reserve policy meeting.
• It is expected to deliver another jumbo rate hike as it remains committed to bringing down inflation.
• Last week, the Dow fell 4.13%, the S&P 500 dropped 4.77% and the Nasdaq Composite sank 5.48%.
  • All three benchmarks posting their 4th losing week in 5 and tumbling to their lowest levels in two months.
• Markets remain under pressure ahead of a much anticipated FED decision on Wednesday. CNBC

Bonds:

• The US 10YT yield rose above 3.46% and fast approaching the over 10-year peak of 3.5% hit in June.
  • The rise on the back of rising concerns that inflation is becoming entrenched,
    • Resulting in deepened expectations that the Federal Reserve will further accelerate the pace of its monetary tightening. 
• After last week’s CPI report surprised to the upside, the latest data showed that retail sales unexpectedly pick up and weekly unemployment claims fell to their lowest since May.
  • Although markets priced in 75 bps, there continue to be open bets that the Fed could raise interest rates by 100bps on Wednesday.  Bloomberg

FRIDAY

• The Dow FELL 139 TO 30,822
• The SP500 DECLINED 28 TO 3,873
• The Nasdaq  FELL 103 TO 11,448

• Image: Trading Economics

OVERNIGHT HEADLINES

• Asian markets all following Wall Street lower ahead of this week’s FED FOMC meeting.
  • In Japan, the Nikkei 225 dropped 1.11% to close at 27,568, hitting its lowest levels in a week and taking cues from a weak overnight session on Wall Street.
    • Investors nervous about high inflation, rising interest rates and slowing growth globally.
    • Economic worries highlighted after FedEx CEO Raj Subramaniam said on Thursday that he believes the global economy was headed for a recession.
    • He cited declining global shipment volumes as “macroeconomic trends significantly worsened.”
  • In Australia, the  ASX 200 eased 0.15% to close at 6,729. The index extending losses from last week as investors remained cautious ahead of central bank decisions this week.
    • Tech stocks led the decline, with sharp losses from Computershare (-4%), while Energy firms also slumped on subdued oil and coal prices
    • Traders expecting an aggressive move from the US Federal Reserve to combat inflation.
       
• Crude Oil futures fell to $84.5/ bl on Monday, extending three weeks of declines.
  • Oil traders citing aggressive monetary tightening and recession fears. This coupled with fears on the demand outlook ahead of the EU embargo on Russian oil in December.
    • Investors are preparing for a raft of interest rate decisions this week, led by the US Federal Reserve which is expected to deliver another supersized rate hike to combat inflation. 
  • Earlier,
    • The German government announced it had taken temporary control of two subsidiaries of the Russian energy giant Rosneft.
      • The move by the government puts it in charge of Rosneft’s stakes in three refineries in the country.
      • This includes a key facility in the northeast of the country which supplies around 90% of Berlin’s fuel, and in which Rosneft held a majority stake.  Reuters
         
• Gold prices weakened below $1,670/oz and in turn extending last week’s sharp decline as investors geared up for a raft of interest rate decisions by major central banks this week.
  • The FED is expected to deliver another jumbo rate hike to tame surging inflation.
  • Higher-than-expected inflation numbers and solid economic data in the US last week cemented expectations that the Fed will tighten further.
  • Markets are currently priced for a third straight 75 basis point increase.
  • Gold lost its shine as a store of value in times of economic uncertainties as the US’ relative economic strength and the Fed’s aggressive stance against inflation lifted the dollar at the expense of other safe-haven assets. KITCO  metals

• The US Dollar

  • The US dollar traded above 110 to 110.10 as investors remained on the side-lines ahead of a big week for central bank decisions.
  • Decision headlined by the Federal Reserve which is expected to deliver another supersized rate hike to tame surging inflation.
    • Higher-than-expected inflation numbers and solid economic data in the US last week cemented expectations that the Fed will tighten further, and markets are currently priced for a third straight 75 basis point increase.
    • The US economy also showed relative strength in the face of slowing global growth, making the dollar attractive for investors looking for safety.
  • Meanwhile, investors remained cautious as other major central banks such as the Swiss National Bank and the Bank of England are also expected to raise interest rates this week.
  • NB: Hawkish surprise could spur more currency volatility. FX NEWS