*|MC:SUBJECT|*







View this email in your browser

Morning NOTE

 2 March 2023

GOOD MORNING

The ZAR gained on the back of profit taking and ignored global risk off sentiment after US yields spiked above 4%.

SUMMARY

The Rand  traded below 18.1000, a gain of 2.21%, since trading at 18.5200 earlier in the week.

  • This morning we opening weaker at 18.2200, after US 10’s traded above 4%, driving risk assets lower.
     
  • Fed speaker continue to drive the narrative and  warn of higher rates above 5%.
     
  • Noted Dove, Atlanta Fed president Raphael Bostic also echoed those sentiments.
     
  • The theme remains –  Fed hikes and inflation at 2%.
    • Markets continue to ignore “dovish data”, after ISM manufacturing also printed lower.
       
  • The drop in SA unemployment was supportive of the ZAR, but ultimately international capital flows continue to drive sentiment .
    • Any inflationary data likely to drive assets prices lower and the ZAR.
       
    • The 10yt at 4.02%
    • The SP500 3928
    • DXY 104.67
       
  • This afternoon we also have weekly US JOBLESS CLAIMS, that will once again give insight into the health of the US JOBS market.
    • A better than expected number likely to send yields higher and the ZAR lower.
       
  • RISK remains under pressure, and a “thin” data calendar unlikely to change the sentiment.

Data this week 

THURSDAY

  • 12H00  EU INFLATION RATE YOY 8.2%  VS 8.6% PREVIOUS
  • 12H00  EU CORE INFLATION RATE YOY 5.3%  VS 5.3% PREVIOUS
     
  • 15H30 : US WEEKLY JOBLESS CLAIMS 197K EXPECTED VS 192K PREVIOUS

 
FRIDAY

  • 17H00 :  US NON  MANUFACTURING (SERVICES) PMI 54.5  EXPECTED VS 55.2
     

Market Movement Today:

The ZAR  opening off its strongest levels reached on Wednesday.

  • After reaching 18.1000 on Wednesday, a spike in US YIELDS above 4% for the 10YT, causing early session losses to 18.2200
     
  • RISK OFF : Risk sentiment remains on the back foot and likely to keep the ZAR under pressure.
     
  • Any dips in the USDZAR / GBPZAR and EURZAR rate, will  present short term importers with an opportunity to buy some foreign currency.
     
  • Dovish data being drowned out by hawkish Fed commentators.
    • On Wednesday ISM  printed lower than expected but markets ignored it after Bostic’s hawkish comments.
    • The market pricing in another 75 bps in hikes before pausing.
       
  • Atlanta Fed President Raphael Bostic called for continued rate hikes to above 5% to make sure inflation does not pick up again,
    • while Minneapolis Fed President Neel Kashkari said the central bank’s rate hikes are not having much of an impact on the services sector.
    • Meanwhile, the greenback fell half a percent on Wednesday after facing pressure from robust Chinese manufacturing data and hot German inflation data. 
       
  • Trade: close to R18/$, it remains short term importers to exact cover and exporters to utilise both FX options and FEC’s .
    • SHORT TERM IMPORTERS ARE ENCOURAGED TO LOOK AT DERIVATIVES TO IMPROVE RATES FOR NEAR TERM INVOICING.

Expected Ranges:

  • USDZAR :  Expect a range 17.9600-18.3500
    • Importers 18.0900-17.9600
    • Exporters 18.2200-18.3500
       
  • EURZAR :  Expect a range of 19.1800-19.51000
    • Importers 19.2900-19.1800
    • Exporters 19.4000-19.5100
       
  • GBPZAR  :  Expect a range of 21.6300-21.9900
    • Importers 21.7500-21.6300
    • Exporters 21.8700-21.9900

OPENING RATES

  • USDZAR 18.2000
  • EURZAR 19.3700
  • GBPZAR 21.8200

SOUTH AFRICA

  • Statistics South Africa said that the country’s official unemployment rate eased marginally to 32.7% in the fourth quarter of 2022.
    • This is a decrease of 0.2 of a percentage point from the previous quarter’s 32.9%.
    • This means almost that 16 million people were still unemployed during this period.
    • Stats SA released the results of the Quarterly Labour Force Survey in Pretoria on Tuesday. EWN
       
  • Eskom on Sunday morning further downgraded load shedding to stage four from 9am, having previously downgraded it to stage five at 5am.
    • The country had been on stage six power outages for seven days straight. Some areas have seen more than eight hours a day without electricity.
    • The embattled utility is still struggling to adequately supply homes, businesses and other critical institutions with electricity throughout the country.
    • Eskom said it would give a detailed update for an outlook on the grid. NEWS24
       
  • South Africa’s only opposition-led province plans to facilitate the construction of almost 6 gigawatts of power generation capacity to counter nationwide electricity shortages and bolster the regional economy.
    • The Western Cape aims to add as much as 750 megawatts of supply by 2025 and to reach 5 700 megawatts by 2035, Premier Alan Winde,
      • a member of the Democratic Alliance, said in an interview at Bloomberg’s Cape Town office on Wednesday.
      • That should be sufficient to meet demand as the provincial economy expands.  MONEYWEB

GLOBAL MARKETS

  • In regular trading on Wednesday, the Dow inched up 0.02%, while the S&P 500 and Nasdaq Composite lost 0.47% and 0.66%, respectively.
    • Those moves came as rising bond yields hurt rate-sensitive indexes, with the benchmark 10-year yield trading above 4% for the first time since November.
       
  • Investors also digested the latest ISM report that showed that the US manufacturing sector contracted for a fourth consecutive month in February.
    • Investors now await jobless claims data, Fed Governor Christopher Waller’s speech and more corporate earnings on Thursday.
    • Dow futures rose 0.45% in Asian trade on Thursday, while S&P 500 and Nasdaq 100 futures were up about 0.1%.

Bonds:

  • The yield on the US 10-year Treasury, traded above 4%.
    • It was the highest level in three months
    • Hot economic data strengthened expectations that the Fed will raise interest rates to a higher level and keep them restrictive for longer.
    • Signs of persistent inflation and a still-tight labour market forced investors to reverse their views on the likely future path of interest rate rises.
       
  • Markets currently at least 3x 25 basis point rate hikes this year and betting that interest rates will peak around 5.5% by June.
    • Money markets also see the European Central Bank raising rates until at least February 2024, with a fully priced 4% ECB terminal rate.
    • This after Germany’s inflation rate surprised to the topside with 8.7% YOY above expectations of 8.5% . CNBC

Yesterday

  • The Dow  gained 5 points to 32,661
  • The Sp500 fell 18 to 3,951
  • Nasdaq  declined 76 to 11,379

:  image: Trading economics

OVERNIGHT HEADLINES

US Dollar

  • The dollar index gained above 104 on Thursday, recouping some losses from the previous session as Federal Reserve officials indicated that more work is needed to bring down inflation.
  • Atlanta Fed President Raphael Bostic called for continued rate hikes to above 5% to make sure inflation does not pick up again.
    • Also, Minneapolis Fed President Neel Kashkari said the central bank’s rate hikes are not having much of an impact on the services sector.
      • Meanwhile, the greenback fell half a percent on Wednesday after facing pressure from robust Chinese manufacturing data and hot German inflation data.
      • Investors also reacted to the latest ISM report which showed that the US manufacturing sector contracted for a fourth consecutive month in February.
      • Investors now await weekly jobless claims data and Fed Governor Christopher Waller’s speech on Thursday. FX NEWS

Asian markets

  • Asian equity markets mostly fell on Thursday, facing pressure from rising Treasury yields as investors weighed the prospect of a higher peak in US interest rates.
    • Investors also digested a raft of economic data in Asia, headlined by South Korean manufacturing PMI which contracted for the 8th straight month in February.
  • In Japan, the Nikkei 225 Index shed 0.06% to close at 27,499, giving back some gains from the previous session and facing pressure from rising Treasury yields,
    • as investors recalibrated expectations for the likely peak in US interest rates.
    • Investors also digested data showing Japanese companies raised spending on plant and equipment by 7.7% year-on-year in the fourth quarter of 2022, while consumer confidence edged higher in February.
  • In Australia, the ASX 200 Index inched up 0.05% to close at 7,255 on Thursday, rising further from recent lows, helped by gains in mining and energy stocks amid firmer commodity prices.
    • The  rising of Treasury yields kept risk assets under pressure as investors recalibrated expectations for the likely peak in US interest rates.
      • Heavyweight iron ore miners led the charge, with gains from BHP Group (4%), Rio Tinto (4%) and Fortescue Metals (4.6%).
      • Gold, coal and energy stocks also advanced, including Newcrest Mining (2.2%).
      • Meanwhile, financial stocks dragged on the benchmark index, with the “Big Four” banks losing between 1.9% to 2.7%. REUTERS

Crude oil

  • US WTI crude futures steadied near $78/bl on Thursday as investors weighed hopes for a rebound Chinese demand against concerns about further policy tightening from the Federal Reserve.
  • Oil prices gained nearly 1% on Wednesday after data pointed to robust manufacturing and services activities in China.
    • In addition, top executives from Chevron Corp and Saudi Aramco signalled optimism about Chinese demand.
  • Meanwhile, Atlanta Fed President Raphael Bostic called for continued rate hikes to above 5% to make sure inflation does not pick up again.
    • The latest ISM report also showed that the US manufacturing sector contracted for a fourth consecutive month in February, adding to concerns about sluggish demand at a time when inventories continue to rise.
    • Elsewhere, Russia recently revealed its plans to cut oil exports from its western ports by up to 25% in March, exceeding its previously announced output curbs of 500,000 barrels per day. GULF ENERGY NEWS

Gold

  • Gold eased toward $1,830/oz on Thursday, snapping a three-day advance as investors continued to fret about the prospect of further monetary tightening from major central banks.
    • In the US, Atlanta Fed President Raphael Bostic called for continued rate hikes to above 5% to make sure inflation does not pick up again.
      • But, Minneapolis Fed President Neel Kashkari said the central bank’s rate hikes are not having much of an impact on the services sector.
    • Gold is highly sensitive to the rates outlook as higher interest rates as higher interest rates raise the opportunity cost of holding non-yielding bullion and vice versa. KITCO METALS

 
 

Copyright ©
2023 RussellStone Treasury 
All rights reserved.

Our mailing address is:
trade@russellstone.co.za

Want to change how you receive these emails?
You can update your preferences or unsubscribe from this list.