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Morning NOTE

GOOD MORNING

The ZAR traded in a narrow ahead of Wednesday’s FOMC and SA’s Budget speech by SA Finance minister Mr Enoch Godongwana.

OPENING RATES

• USDZAR 18.1000
• EURZAR 19.3000
• GBPZAR 21.7800

SOUTH AFRICA

• Eskom said that since the members of the SANDF were deployed to its power stations, 48 people had been arrested for various criminal activities.
  • Soldiers were sent to various power stations in December, to reduce theft and sabotage at the utility.
    • The ailing power utility said that it had identified Mpumalanga as a hotspot for coal theft.
    • It said that despite the defence force not having any powers to arrest these suspects, there had been significant progress in reducing crime as the utility was not as vulnerable anymore.

THE BUDGET

• Finance Minister Godongwana will have to juggle competing national spending priorities and limited resources when he tables his budget speech in Cape Town this week.
  • Godongwana’s highly anticipated address comes amid the country’s tough economic times with high unemployment and frustrated residents due to load shedding.
  • Economists expect the country’s unstable electricity supply to be top of the agenda.
  • Load shedding has continued to escalate, with more than 200 days of power cuts in 2022.  Moneyweb

GAUTENG

• Like the Western Cape, Gauteng Premier Panyaza Lesufi said that the provincial government would be building a solar farm that would be able to generate about 800 megawatts of electricity.
  • Lesufi said that this was part of Gauteng’s plan to generate its own electricity and lessen its dependence on Eskom.
  • He announced this on Monday during his State of the Province Address (Sopa) at the Joburg City Hall. IOL

FLOODS

• Some of the residents affected by the recent floods in the Vaal have described the surge of water as man-made.
  • Twelve of the Vaal Dam’s sluice gates were opened at the weekend, after the Department of Water and Sanitation (DWS);
    • said this was to relieve water pressure after heavy rainfall caused dams that feed into the Vaal and Orange river systems to overflow.
    • Residents all saying they will hold  DWS and Rand Water accountable as the  floods are man made due to  bad maintenance.” EWN

GLOBAL MARKETS

Stocks:

• US markets were closed on Monday, celebrating President’s day.
  • US stock futures slipped in post-holiday trade on Tuesday as investors remain cautious about the prospect that the Federal Reserve will have to raise interest rates further to tame inflation.
    • Traders citing  increased the risk of a recession.
       
• Investors now look ahead to the latest FOMC meeting minutes on Wednesday and the Fed-preferred inflation gauge on Thursday that could guide the rates outlook.
  • Traders also await corporate earnings from retail giants on Tuesday including Walmart and Home Depot. CNBC

Bonds:

• The yield on the US 10-year, seen as a proxy for global borrowing costs, topped 3.9%, a level not seen in three months.
  • Traders continue to  adjust their portfolios for a higher terminal rate.
• Recent economic data showed the sharpest increase in producer prices in seven months in January,
  • while another report showed the number of Americans filing new claims for unemployment benefits unexpectedly fell last week.
    • All of this  opening the door to further rate hikes by the Federal Reserve.
• Money markets have now priced at least three more 25 basis point rate hikes this year and see interest rates peaking at 5.5% by July.
  • Some governors now calling for 50 bps at the Fed next meeting. Reuters

Yesterday

• ***US MARKETS CLOSED

:  image: Trading economics

OVERNIGHT HEADLINES
The Dollar

• The US dollar traded around 104 on Tuesday, holding near its highest levels in six weeks as stronger-than-expected US economic data and hawkish remarks from Federal Reserve officials buoyed the currency.
• Latest data pointed to still elevated inflationary pressures and a robust jobs market in the US, supporting the case for further monetary tightening.
• Cleveland Fed President Loretta Mester said she saw a “compelling economic case” for another 50 basis point rate hike.
• Also, St. Louis Fed President James Bullard also stated he would not rule out backing a half-percentage point increase at the Fed’s March meeting.
• Investors now look ahead to the latest FOMC meeting minutes, more Fed commentary and the Fed-preferred inflation gauge of PCE price index this week. Fx news

Asian markets lower across the region ahead of tomorrow’s FOMC minutes.

• Adding to negative sentiment was Japan reporting that manufacturing had fallen to 2 ½ year lows.
  • In Japan, the Nikkei 225 fell 0.21% to close at 27,473, giving back gains from the previous session.
    • Expectations continue to support a US Fed, that will have to raise interest rates further to tame inflation weighed on market sentiment.
      • Markets also continued to assess Japan’s monetary policy outlook following the appointment of Kazuo Ueda as Bank of Japan’s next governor, the first academic to head the bank in post-war Japan.
  • In Australia, the RBA  raised the cash rate by 25bps to 3.35% at its February meeting, matching market forecasts.
    • Tuesday’s move was the ninth rate hike since May last year, which brought borrowing costs to a level last seen in September 2012.
      • A total of 325bps increases also marked the sharpest annual tightening since 1989, while the board reiterated further hikes would be needed as inflation in Australia remained too high.
      • The central bank seeks to return inflation to the 2–3% range and projects the reading to come in at 4-3/4% this year and around 3% by mid-2025.
    • The ASX 200 Index fell 0.21% to close at 7,336 on Tuesday. source: Reserve Bank of Australia

Crude oil

• US WTI crude futures steadied near $77 per barrel on Tuesday as traders weighed optimism over China’s demand recovery.
  • This was offset against concerns about rising US crude supplies and further central bank policy tightening.
    • In the latest sign of rebounding energy demand from China following its exit from the zero-Covid policy,
      • Russian exports of discounted crude and fuel oil to the world’s top crude importer jumped to record levels in January.
  • The IEA and OPEC also raised their forecast for 2023 oil demand growth, citing higher consumption from China.
  • BUT, the US oil benchmark lost about 4% last week after the US government announced plans to release 26 million barrels of oil from strategic reserves. Gulf energy news

Gold

• Gold held below $1,850/oz, hovering near its weakest levels in seven weeks on the back of a stronger Dollar.
  • Recent stronger-than-expected US economic data and hawkish remarks from Federal Reserve officials weighed on the metal.
  • The latest data showed that US producer prices increased 0.7% MoM in January, the most in seven months and higher than the market forecasts of a 0.4% gain.
    • Data supporting the case for further monetary tightening. Some Fed officials indicated last week that they were open to a bigger 50 basis point rate hike at the central bank’s March meeting.
    • Investors now look ahead to the FOMC meeting minutes, more Fed commentary and the Fed-preferred inflation gauge of the PCE price index this week. Kitco metals report