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Morning NOTE

GOOD MORNING

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

OPENING RATES

• USDZAR 18.2800
• EURZAR 17.8900
• GBPZAR 20.5200

SOUTH AFRICA

• MATRIC EXAMS AT RISK
  • 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
           
• ESKOM
  • 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
     
• TECHNICAL RECESSION
  • 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

GLOBAL MARKETS

Stocks:

• 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

Bonds:

• 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

YESTERDAY

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

•  Image: Trading Economics

OVERNIGHT HEADLINES
 

• 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
     

• YEN CURRENCY CRISES

  • 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.