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Morning NOTE

20 October 2022


The ZAR weakened on the back of global risk off, following a sharp spike in Global yields.


  • The Rand reached a weakest level of 18.3400, following a sharp spike in global interest rates after the UK CPI printed at 40 year highs.
    • Very early in the session, UK CPI surprised the market to the topside with 10.1% actual vs 9.9% expected.
    • The data sending a shock through markets as US 10’s hit 4.14%
  • In addition, the SP500 fell sharply on the back of yields (below 3700) and disappointing results out of Tesla.
    • The automaker falling more than 5% after missing revenue estimates.
  • All of this contributing to RISK OFF across the board, with the US dollar the primary beneficiary.
    • Also the USDJPY at risk of breaching the ¥150 mark, as policy divergence continues to batter the Yen.
    • Risk: Japanese authorities continues to warn and possible intervention could happen.
    • The result : Weaker ZAR on the back of weaker RISK ASSETS.
  • Earlier in the day SA CPI printed at market expectation levels of 7.5% .
    • The rate remains above the SARB’s upper band and will likely lead to more hikes from the SA Reserve Bank.
    • Core CPI was also higher at 4.7% YOY vs 4.5% expected.

Significant Market Data:

  • Nothing of significance , although the session once again dominated by Fed speakers.


  • The ZAR remained weaker following another weak session on Wallstreet.
    • Markets opening risk off as US yields continues to spike and in turn supporting the Dollar.
    • Fed speakers continue to push for higher rates and the ZAR likely to remain under pressure in this environment.
  • The higher than expected SA inflation data unable to slow the decline in the local unit, with the US10YT at 4.16%.
  • Markets needing weaker economic data to slow FED rate policy,
    •  and for now this the only way the ZAR can recover.
  • Against this backdrop, we once again expect a WEAKER ZAR, and a break of 18.3600 likely to target 18.5000.
  • Trade today : BUY  USDZAR 

Expected Ranges

  • USDZAR :  Expect a range 18.1300-18.4600
    • Importers 18.2400-18.1300
    • Exporters 18.3500-18.4600
  • EURZAR :  Expect a range of 17.7000-18.0600
    • Importers 17.8600-17.7000
    • Exporters 17.9300-18.0600
  • GBPZAR :  Expect a range of 20.3400-20.7300
    • Importers 20.4700-20.3400
    • Exporters 20.6000-20.7300


  • USDZAR 18.2800
  • EURZAR 17.8900
  • GBPZAR 20.5200


    • There are only two weeks to go before the start of the national senior certificate examinations.
      • Teacher unions are concerned that the crippling water shortages and electricity crisis could compromise the integrity of the exams.
      • Both public and independent schools are expected to begin their exams later this month.
        • This year, more than 923,000 pupils will sit to write their final year exam in public schools while over 13,000 others will do so in private schools.
        • The 2022 matric class has been hardest hit by the COVID-19 pandemic, as they started dealing with its impact in grade 10.
        • Pupils in Gauteng and KwaZulu-Natal have also had to face damaged property and school closures
          • after floods and the unrest which resulted in more than 140 schools being vandalised.  EWN
    • Stage 3 power cuts have been extended from 5AM on Thursday until further notice.
    • Eskom said that this was due to unit failures at the Kendal, Kriel and Arnot power stations. EWN
    • South Africa’s economy is likely in a technical recession.
    • This according to Citibank economist Gina Schoeman.
    • This as intensified power cuts and heightened uncertainty caused by Russia’s war with Ukraine rippled through global financial markets.
    • The economy likely contracted for a second consecutive quarter in the three months through,
      • said Schoeman at the Bloomberg Capital Markets Forum in Johannesburg on Wednesday. Moneyweb


  • In regular trading on Wednesday, the Dow fell 0.33%, the S&P 500 lost 0.67% and the Nasdaq Composite dropped 0.85%, with US stocks snapping a two-day winning streak.
  • US stock futures lower, as the Nasdaq 100 futures lower following Tesla’s plunge in late trading on softer-than-expected third-quarter revenue.
    • S&P 500 futures also dropped 0.3%, while Dow futures drifted flat to slightly negative.
      • In extended trading, Tesla slumped 5% after reporting a revenue of $21.45 billion, less than the $21.96 billion forecasted by analysts.
      • Alcoa also tumbled 8% on an earnings and revenue miss, as well as lower 2022 shipment projections, while IBM jumped 3% on better-than-expected Q3 results.
  • Those moves came as Treasury yields surged, with the benchmark 10-year US yield rising above 4.1% to its highest since July 2008.
    • Investors now look ahead to more earnings reports on Thursday and a number of economic releases. CNBC


  • The US Treasury yield, topped the 4.1% mark, the highest since October 2008,
    • with investors fretting about the prospects of a recession from aggressive central bank actions to tame inflation.
    • Minneapolis Fed President Neel Kashkari was the latest policymaker to warn that the central bank might need to lift its policy rate above 4.75% .
      • if underlying inflation continues to accelerate.
  • Germany’s 10-year Bund yield, the European benchmark, rose to as high as 2.4%, closing in on its highest level since August 2011.
    • Also, volatility is expected to remain elevated, with sharp moves in gilts sending shockwaves through other bond markets. BLOOMBERG


  • The Dow fell 99 points to 30,423
  • The SP500 fell 24 to 3,695
  • The Nasdaq  fell 91 to 10,680


  • Asian markets all lower following the sharp reversal on Wallstreet. New York stocks under pressure after Tesla disappointed and Yields continue to rise.

    • In Japan, the Nikkei 225 fell 1% to 26,990, tracking a weak Wall Street session overnight, with technology firms leading the decline on the back of  surging Treasury yields.
      • Investors also assessed data highlighting Japan’s ever widening trade deficit as imports outpaced exports due to high commodity prices and a weakening yen.
      • Traders remain on edge, after the Japanese yen depreciated past ¥149/$ dollar. The currency sinking to its lowest levels in 32 years and is at risk of hitting the key psychological level of 150.
        • The level that markets fear would push the government to step in again and support the currency.
        • Finance Minister Shunichi Suzuki said the government will take bold action should speculative currency moves persist.
    • In Australia, the ASX200  declined 1.02% to close at 6,731. The moves on a  weak session on Wall Street overnight, with technology stocks leading the decline.
      • Among the top losers in the sector were Computershare (-2.4%), Xero (-5.2%), Megaport (-11.8%), Wisetech Global (-2.5%), Block Inc (-7.9%) and Seek (-2.8%).
      • Heavyweight iron ore miners and gold stocks also declined on weaker prices in their underlying commodities, with losses from BHP Group (-2.3%). Reuters
  • The US  dollar rose above 113, supported by a surge in Treasury yields. Traders betting that the Federal Reserve will push ahead with its aggressive tightening plans to bring down inflation, at the expense of growth concerns.
    • The benchmark US 10-year Treasury yield surged past 4.1% to its highest levels since June 2008.
      • Markets are currently priced for another 75 basis point rate hike next month.
      • Additional, hawkish statements from US policymakers hinting at an even higher peak for rates bolstering such a view.
      • The dollar’s strength was seen across the board, with some of the most pronounced buying activity against the Australian and New Zealand dollars as risk appetite dried up. FX news
  • Crude oil were mixed on Thursday, with WTI futures rising toward $86/bl while Brent flatlined at to $92/bl.
    • Markets grappling with supply On Wednesday, after US President Joe Biden unveiled plans to sell 15 million barrels of oil from the Strategic Petroleum Reserve to bring down gasoline prices.
      • However, a looming European Union ban on Russian crude and OPEC+’s decision to cut production by 2 million barrels per day threatened to undermine those efforts.
        • Adding to the bullish case, official data showed that US crude inventories unexpectedly fell by 1.7 million barrels last week despite expectations for a build of 1.4 million barrels.
        • SPR levels in the US also dropped by 3.6 million barrels to just over 405 million, the lowest since May 1984.
      • However, recession worries on the back of rate hikes continue to pressure oil and prices are down more than 30% for 2022. Gulf Energy News
  • Gold prices declined below $1,630/oz on Thursday, approaching levels last seen in April 2020.
    • The yellow metal continues to suffer at the hands of a rampant Dollar, supported by Treasury yields on expectations that the FED will continue raising interest rates aggressively to combat inflation.
    • Markets are currently priced for another 75 basis point rate hike next month.
    • Fed speakers continuing with a chorus of hawkish statements hinting at an even higher peak for rates supporting such a view.  Kitco metals

    • The Japanese yen depreciated past 149 per dollar.
      • The currency fast approaching  sinking to its lowest levels in 32 years and is at risk of hitting the key psychological level of 150 .
        • Traders fear would push the government to step in again and support the currency.
        • The yen has declined nearly 30% against the dollar this year due to widening policy divergence.
        • The Bank of Japan committed to ultra-easy monetary policy to support the economic recovery.
        • While the US Federal Reserve aggressively raised interest rates to combat surging inflation.

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