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Morning NOTE

GOOD MORNING

The ZAR weakened on a combination of profit-taking as well as nervousness ahead of Jerome Powell’s 2 day testimony.

OPENING RATES

• USDZAR : 18.4000
• EURZAR : 20.1000
• GBPZAR : 23.5000

SOUTH AFRICA

ESKOM
DE RUYTER

• Eskom’s legal head Mel Govender said she doesn’t advise that the power utility institute legal proceedings against former CEO Andre’ De Ruyter.
  • She told Parliament’s Standing Committee on Public Accounts (Scopa) that Eskom should rather spend its resources trying to recoup stolen money and go after employees and others responsible for corruption. | News24

DIEPSLOOT

• ESKOM said it was withdrawing services from the Diepsloot  due to violent protests.
  • Demonstrations once again flared in the North of Johannesburg on Tuesday with disgruntled residents burning tyres and barricading roads over service delivery shortfalls.
  • Resident also cited including power outages and rampant crime in the area. |EWN

SA RUSSIA UKRAINE

• Former President Thabo Mbeki said that it was important for the negotiations to start with African leaders, hearing both sides from presidents Volodymyr Zelenskyy and Vladimir Putin.
  • Both leaders were present at Mbeki’s 81st birthday celebrations in Johannesburg on Sunday night.
     
• However, Ukraine’s ambassador to South Africa, Liubov Abravitova, said that the conflict in her country was finally being recognised as a war, although she considered it rather as an invasion.
  • She was commenting on the African peace mission and what was achieved over the past week. |Source : EWN

GLOBAL MARKETS

Stocks
Global stocks lower as markets await Fed Chair Powell’s Congressional testimony.

• In the US, all three major US indexes finished in the red.
  • The Dow Jones fell more than 240 points, the S&P 500 lost 0.4% and the Nasdaq dipped by 0.1% as investors await comments from several Fed officials this week including Jay Powell’s testimony.
  • The losses came as investors cautiously awaited comments from Federal Reserve officials this week, especially Fed Chair Jerome Powell’s semi-annual report to Congress for further clues on the central bank’s next steps.
     
  • Meanwhile, housing starts and building permits topped forecasts, with the former unexpectedly surging the most since 2016 last month.

Bonds
Bonds yields mixed, as traders await Fed Chair Jerome Powell’s two day congressional testimony.

• In the USA
  • The yield on the US 10-year Treasury note fell 11bps to 3.7% to kick off a holiday-shortened week, the lowest in two weeks.
  • Traders remain focused on the monetary policy outlook and eagerly await comments from several Fed officials this week.
  • The focus will be on Chair Powell’s semi-annual report to Congress for further clues on the central bank’s next steps.
  • Around 72% of market participants expect the Fed to raise rates by 25bps next month.
     
• In the UK
  • The yield on the 10-year UK gilt continued its upward trajectory, rising towards the 4.5% mark and reaching its highest level since September 2022.
  • Traders eagerly awaited the Bank of England’s policy meeting scheduled for Thursday.
  • The two-year gilt yield also exceeded 5%, a level not seen since the 2008 financial crisis.
  • British policymakers will raise interest rates for the 13th consecutive time, pushing them to their highest point in 15 years, in response to persistent inflationary pressures.
  • Investors are also keeping a close eye on May’s inflation data, set to be released on Wednesday.
  • Speculation among investors suggests that the UK policy interest rate may reach its peak at 5.75% by the beginning of next year.
     
  • Earlier this morning, the UK Inflation Rate Unexpectedly Flat in May
    • British inflation rate held steady at 8.7% in May, unchanged from April’s 13-month low but above forecasts of 8.4%.
    • The rate remained also significantly higher than the Bank of England’s target of 2%.
    • The  rate adding to concerns about its stickiness and placing additional pressure on policymakers to maintain the bank’s ongoing tightening campaign.
    • The core CPI rose by 7.1%, the most since March 1992. |source : Trading economics

Yesterday

• Dow -245 to 34,053
• SP500 -20 to 4,388
• Nasdaq  -22 to 13,667

  image: Trading economics

OVERNIGHT HEADLINES

Asian markets
Asian markets mixed following better than expected data out of Japan vs concerns around Jerome’s Powell’s testimony later in the day.

• In Japan, the Nikkei 225 rose 0.56% to close at 33,575, reversing losses from earlier in the session and defying a widespread decline in the Asia-Pacific region.
  • Investors digested data showing sentiment among large manufacturers in Japan improved in June.
  • A BOJ official also said it was premature to exit ultra-easy monetary policy as the price outlook remains uncertain amid signs of weakness in the global economy.
  • Meanwhile, investors remain cautious ahead of Federal Reserve Chair Jerome Powell’s testimony before the US Congress.
  • Notable gains were seen from index heavyweights such as SoftBank Group (3.7%). Source : Reuters
     
• In China, the Shanghai Composite dropped 0.7% to below 3,220. The index sliding for the third consecutive session as the central bank’s interest rate cuts were deemed insufficient to support growth.
  • The People’s Bank of China( PBoC) lowered both its one-year and five-year loan prime rates by 10 basis points on Tuesday, after cutting two other short-term lending rates last week.
  • Meanwhile, analysts suggested that those policy moves were not enough to bolster the economic rebound, raising expectations that Chinese authorities would ease policy further.
  • High-growth technology stocks led the decline. | source Reuters

Energy
Oil prices trending higher in earlier Asian trading.

• US WTI crude futures rebounded to trade above $71/bl , after losing 1% in the previous session.
  • Prices however remain under pressure, after demand concerns in top crude importer China. China’s largest oil and gas producer, cut its 2023 China crude demand estimate.
  • Data also showed that China’s energy imports slightly fell in May, while the country’s crude oil stockpiles rose to a two-year high last month.
  • Meanwhile, voluntary output cuts implemented in May by OPEC+ and additional cuts by Saudi Arabia in July kept a floor under oil prices.
  • Investors were also hopeful that interest rate cuts in China and the pause in the US Federal Reserve’s tightening campaign would bolster the outlook for the global economy and energy demand. |Gulf news

Metals
Precious metals lower on the back of rising yields ahead of Fed Chair Powell’s testimony

• Gold failed to hold its momentum and fell to $1,930/oz on Tuesday as renewed concerns of a hawkish Federal Reserve pared demand for non-interest-bearing bullion assets.
  • The world’s largest central bank also saying in its latest report to Congress that inflation in key parts of the US services industry “remains elevated and has not shown signs of easing.”
  • Markets are currently priced for the Fed to raise rates again by 25bps in July and end its tightening cycle.
  • Meanwhile, markets await several appearances of Fed officials and a rate hike by the Bank of England. |source : Kitco

Currencies
The Dollar higher across the board ahead of Jerome Powell’s testimony

• The dollar index traded above 102.5 on Wednesday.
  • The Buck holding its recent advance amid surprisingly strong US housing data, while investors look ahead to Federal Reserve Chair Jerome Powell’s testimony before Congress later in the global day.
  • Data showed that housing starts in the US surged 21.7% in May despite forecasts for little change.
  • Markets betting that the central bank would lift rates again by 25 basis points in July and halt afterwards.
  • Last week, the Fed decided to pause its aggressive tightening campaign, but hinted at further policy tightening this year.
  • The central bank said in its latest report to Congress that inflation in key parts of the US services industry “remains elevated and has not shown signs of easing.” |Source : Bloomberg