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Morning NOTE

GOOD MORNING

The ZAR retreated on the back of a rebound in the Dollar ahead of key data this week.

SOUTH AFRICA

Coal

• Global demand for coal is bringing mayhem to SA towns.
  • Miners have no choice but to use trucks to cash in on record demand.
  • SA became one of Europe’s main alternatives to Russian coal following Moscow’s invasion of Ukraine in February 2022.
  • Suppliers are finding new buyers in India and China.
  •  It’s not possible to swap roads for rail because Transnet’s Freight Rail is crumbling.
  • Miners have no choice but to use trucks to cash in on record demand. Source Moneyweb

SA-US relations

• Minister of Trade and Industry Ebrahim Patel admitted that the United States (US) did question South Africa’s relations with Russia.
  • The discussions amid the ongoing war in Ukraine, while discussing a possible extension of the African Growth and Opportunity Act (AGOA).
  • Earlier in July, Patel, alongside Minister of Finance Enoch Godongwana, visited Washington to discuss the state of trade agreements between the two countries.
  • South Africa asked the US to consider an early extension of AGOA, set to expire in 2025.
  • Patel said South Africa cannot afford to lose out on AGOA’s benefits.
    • “The United States is our second largest country trading partner. At a country level, it follows China, which is our biggest trading partner.
    • We sell about $15 billion worth of products to the United States.”
  • South Africa faces losing the benefits of the trade programme as a result of its alleged relationship with Russia and its “fence-sitting” on Russia’s invasion of Ukraine. Source Moneyweb

GLOBAL MARKETS

Stocks

• Stocks lower after US debt Downgrade

  • US stock futures fell on Wednesday after Fitch downgraded the US’s credit rating from AAA to AA+.
  • The ratings agency citing  “the expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance” relative to peers.
     
  • On Tuesday, the Dow gained 0.2%, while the S&P 500 and Nasdaq Composite dropped 0.27% and 0.43%, respectively.
    • Those moves came as investors reacted to mixed corporate earnings results, though about 82% of S&P 500 companies that have reported earnings so far posted positive surprise, according to FactSet.
    •  
    • Futures contracts tied to the three major indexes were all down at least 0.2%.

Bonds

• Yields rebound on back of resilient US economy.

  • The yield on the US 10-year Treasury rose above the 4% mark.
  • The benchmark approaching levels last seen in November 2022 and adding 20bps since the start of the third quarter.
     
• Traders citing evidence of a resilient economy strengthened the case for the Federal Reserve to remain hawkish.
  •  
  • The US GDP expanded by 2.4% in the second quarter, surpassing market expectations of a 1.8% increase.
  • Additionally, jobless claims declined to multi-month lows in the end of July and the JOLTS pointed to another period of solid job offers.
  • Key data this week will confirm the trend of tightness in the labour market.
  • The results underscored the economy’s strength despite the Fed’s aggressive tightening campaign.
  • All of this backing bets that the central bank may deliver another rate hike this year.

Market Close:

• DOW +71 to 35,630
• SP500 -12 to 4,576
• NASDAQ -62 to 14,238

OVERNIGHT HEADLINES

  image: Trading economics
 

Asian markets

• Asian equity markets lower after US debt downgrade.
  • Fitch downgraded the US’s credit rating from AAA to AA+.
• In Japan, the Nikkei 225  dropped 1.1% to around 33,100, breaking a two-day rally.
  • Markets  weighed down by weak global sentiment after Fitch downgraded the US’s credit rating due to fiscal and governance-related uncertainties.
  • Investors also continued to track the yen and JGB yields after the Bank of Japan made adjustments to its yield curve control policy at last week’s meeting.
  • Technology stocks led the decline, with notable losses from Advantest (-3.2%), Tokyo Electron (-2.4%), SoftBank Group (-1.2%). Source Reuters

Energy

Oil prices higher US inventory drop.   

• US WTI crude futures jumped more than 1% to above $82 per barrel on Wednesday, hitting the highest levels in over three months.
• An industry report showed that US crude inventories declined by 15.4 million barrels last week.
• The latest figure far exceeded market expectations for a 1.37 million barrel draw,
  • and if confirmed by official data due later on Wednesday, it would mark the largest drop in US crude inventories in over four decades.
• Oil prices have also been rallying since late June as Saudi Arabia’s voluntary output cuts tightened global supply.
• The de facto OPEC leader is also expected to announce an extension of its 1 million barrels per day production cut through September at the group’s meeting on Friday.
• Meanwhile, the USA pulled an offer to buy 6 million barrels of oil for the US Strategic Petroleum Reserves to counter rising energy prices. Source Gulf news

Metals

Precious metals losing ground after US yields spike.

• Gold fell to around $1,946/oz on Tuesday, struggling to gain momentum as investors awaited more data to guide the economic and monetary policy outlook.
• The Fitch downgrade of the USA to AA+ from AAA , so far being ignored by traders.
• US 10Y’s back above 4% and supporting the recent Dollar at the expense of precious metals.
• Investors now look ahead to the key US monthly jobs report later in the week.
• Meanwhile, the Reserve Bank of Australia kept its policy rate unchanged at 4.1% during its August meeting, defying market expectations for a 25 basis point rate hike. Source Kitco

Currencies

Dollar higher on the back of higher US yields

• The dollar index appreciated to 102.3 on the first day of August.
• The Greenback, trading at high levels not seen in nearly a month, as risk appetite declined.
• Investors also digesting fresh economic data and the monetary policy outlook.
• The ISM manufacturing PMI for the US pointed to a ninth-straight month of contraction in the factory sector .
• The payrolls report due Friday is set to provide further clues on the labour market strength. Source :  Forexnews