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Morning NOTE

GOOD MORNING

The ZAR continued its gains on the back of a weaker Dollar and a continuation of poor economic data  out of the USA.

OPENING RATES

• USDZAR : 18.0700
• EURZAR : 19.8100
• GBPZAR : 22.4700

SOUTH AFRICA

STAGE 8

• The SA government is preparing for the worst this winter as South Africa will certainly experience Stage 8 load shedding.
  • This means up to 12 hours of no electricity in once day.
  • Analysts  understands this is part of the projections put forward by Electricity Minister Ksogientsho Ramokgopa before Cabinet on Wednesday.
  • South Africa’s power woes are likely to worsen this winter – causing an even more devastating blow to an already ailing economy.
  • This could possibly see over 800,000 jobs shed. EWN

Coal

• Energy manager at Business Unity SA, said that taxpayers, in the end, may have to bear the financial burden of government’s decision to extend the use of some coal-powered power stations in the country.
  • Eskom’s power supply has been increasingly inconsistent as its old power plants see daily generation breakdowns.
  • But Electricity Minister Kgosientsho Ramokgopa has decided to stall the retirement of these struggling plants in an attempt to boost supply

Home loans and bad debts

• When the South African Reserve Bank (Sarb) turned hawkish to rein in spiralling inflation;
  • The hiking cycle has seen a cumulative 425 basis points (bps) increase in the repo rate since then,
  • making it more expensive for consumers to finance their debt.
  • Most of the pressure is being felt by those with longer-term debt such as home loans and vehicle finance.
     
  • Since then SA  Banks have increased bad debt provisions as interest rate spikes hit homeowners
    • There are now clearly signs that show home loan customers are struggling.
  • While the banks have been raking in good profits on the back of lending and higher interest rates,
    • consumers have been buckling under the pressure of cumulative repo rate hikes since November 2021.  Money web

GLOBAL MARKETS

Stocks 

• On Thursday, the Dow fell 0.33%, the S&P 500 dropped 0.59% and the Nasdaq Composite declined 0.8%, with ten out of the 11 S&P sectors finishing lower.
  • Traders citing Tesla as the driver, and its shares weighed on the indexes.
    • The Stock losing nearly 10% after reporting lower first quarter net income and unveiling price cuts on its models.
  • US stock futures steadied on Friday after the major averages tumbled during Thursday’s regular session,
    • as investors weighed a slew of corporate earnings reports.
    • Futures contracts tied to the three major indexes were all trading near breakeven.
• Meanwhile, Cleveland Fed Bank President Loretta Mester backed another interest rate hike to tame inflation .
  • She then emphasized the need to monitor the impact of the recent banking turmoil on the wider economy.
  • Investors now look ahead to more earnings reports on Friday, as well as US manufacturing and services PMI data to gauge the health of the economy.

Bonds 

• The US 10-year US yield, eased to 3.56% from nearly one-month highs of 3.6% touched on April 19th after new data signalled an economic slowdown.
• The Philadelphia Fed manufacturing index sank more than expected to its lowest since May 2020,
  • While initial jobless claims unexpectedly rose for the second week and continuing claims hit the highest level since November 2021.
     
• Still, markets continue to price in a 25bps increase in the fed funds rate next month while a cut is now mostly expected by the end of the year.
• Cleveland Fed president Mester joining  New York Fed President Williams, quoting that “ inflation is still too high and the central bank needs to hold policy tight”.
  • Appearances from other policymakers this week are also set to provide further hints on the policy outlook.

Yesterday 

• DOW  fell 79 to 33.897
•  SP500 flat at 4,154
•  NASDAQ added 3 to 12,157

  image: Trading economics

OVERNIGHT HEADLINES

The US Dollar

Asian markets lower following a negative close on Wall Street . traders remain concerned about more rate hikes that could tip the economy into recession.

• In Japan, the Nikkei 225 rose 0.3% to above 28,700, with the former hitting eight-month highs as investors digested data showing Japan’s core inflation came in at 3.1% in March.
  • It was unchanged from February which was the lowest in five months.
  • Manufacturing activity in the country also improved in April amid further economic recovery.

• In Australia, the ASX 200 Index fell 0.5% to 7,325, retreating further from two-month highs.
  • The heavyweight firms in the mining, energy and financial sectors leading the broad share market decline.
  • Investors also reacted to data showing Australian manufacturing activity contracted further in April, while services activity turned expansionary.
  • Mining and energy stocks tumbled on weaker commodity prices, with notable losses from BHP Group (-1.4%), Rio Tinto (-2.2%),
  • The benchmark index is on track to end the week lower, snapping three straight weeks of gains. Reuters

Crude oil

• US WTI crude futures steadied above $77/BL on Friday but was still set to lose more than 6% this week.
  • Prices  erasing most of the OPEC-driven rally amid lingering concerns about higher interest rates.
  • Thus  slowing global growth and softening energy demand.
  • The US Federal Reserve will likely deliver another 25 basis point rate hike in May,
    • while the European Central Bank is expected to raise borrowing costs at least two more times this year.
       
  • BUT A key Fed report also signaled that the US economy has stalled in recent weeks, weighing on risk assets and energy demand prospects.
  • prices. Gulf energy news

Gold

• Gold fell below $2,000 /oz on Friday and was set to decline for the second straight week.
  • Bullion prices weighed down by firm expectations that the US Federal Reserve will raise interest rates again in May.
  • A host of Fed officials supported the need for further policy tightening to bring down inflation-
    • with St. Louis Fed President James Bullard favouring a higher terminal rate of between 5.50% to 5.75%.
      • Williams of New York and Mester of Cleveland all joining the chorus.
    • The Fed and ECB are both expected to hike at their next meeting sending gold prices lower. kitco metals report