View this email in your browser

Morning NOTE

GOOD MORNING

The ZAR strengthened on the back of profit taking ahead of multiple central bank rate decisions this week.

OPENING RATES

• USDZAR 17.7100
• EURZAR 17.6200
• GBPZAR 20.1500

SOUTH AFRICA   

• ESKOM
  • The reaction and fallout because of the latest power crisis continued in Parliament on Tuesday.
    • Opposition parties have not only called for the Eskom leadership to be axed, they’ve also singled out Minerals and Energy Minister Gwede Mantashe.
    • There are also calls for a change in the country’s energy policy and the removal of certain legal requirement to supply energy.
    • The DA said that Minister Mantashe should take the fall while the EFF said that Andre de Ruyter and the entire Eskom board should be fired. EWN
  • ESKOM however announced stage 5 is likely to continue as it struggles to bring failed units back online to support the grid.
    • It has since emerged that the country was close to stage 7 on Monday. IOL
• Public service labour unions have been issued a certificate allowing them to embark on a legal strike, after failing to break a wage impasse with the Public Service Coordinating Bargaining Council (PSCBC).
  • The unions, which include the South African Policing Union (SAPU) on Tuesday held conciliation talks with CCMA commissioner in a bid to resolve the wage deadlock.
  • Government has stuck to its 3% offer, which unions have rejected. NEWS 24

GLOBAL MARKETS

Stocks:

• In regular trading on Tuesday, stocks reversed Friday’s gains, where the Dow fell 1.01%, the S&P 500 dropped 1.13% and the Nasdaq Composite lost 0.95%.
  • The drops bringing all three benchmarks closing at their lowest levels in 2 months.
  • All S&P sectors declined, led by real estate, materials and consumer discretionary
• This morning  futures were little changed as investors moved to the side-lines ahead of a key Federal Reserve decision.
  • Stocks reversed gains from earlier this week as the Fed is expected to signal its firm commitment to fighting inflation, while the third quarter earnings season also loomed over the markets.

Bonds:

• The US 10YT yield touched 3.59%, the highest since April of 2011, as the 2-day FOMC meeting kicks off.
  • The Fed is widely expected to deliver another 75bps rate hike while bets of a full point increase have scaled back.
    • Investors will also keep a close eye on the so-called dot plot for projections on where rates may go later this year and next year.
  • Meanwhile, the yield on 2-year note topped 3.98%, the highest since November of 2007 .
  • On Monday, the yield curve between two-year and 10-year notes inverted as far as negative 48 basis points.
    • An inversion in this part of the yield curve is usually seen as an indicator that a recession will follow in one to two years. Source : US treasury

YESTERDAY

• The Dow fell 313 to 30,706
• The Nasdaq declined 109 to 11,425
• The SP500 fell 43 to 3,855

• Image: Trading Economics

OVERNIGHT HEADLINES

• Asian markets tracking lower after a turn around that saw Wall Street trade lower.

• In Japan, the Nikkei 225 fell 1.36% to 27,313, as investors turned cautious ahead of an expected interest rate hike from the US Federal Reserve.
  • The FED  is widely expected to announce a third straight 75 basis point rate increase to tackle inflation.
    • Traders are preparing should Fed Chair Jerome Powell deliver a more hawkish view than markets anticipate.
  • Investors also awaited the Bank of Japan policy decision this week, where it is widely expected to maintain ultra-low interest rates despite pressure from rising inflation and a weakening yen.
• In Australia, ASX 200 fell 1.56% to close at 6,700 on Wednesday, hitting its lowest level in two months and taking cues from a weak overnight session on Wall Street.
  • Domestically, Reserve Bank of Australia Deputy Governor Michele Bullock reiterated that the central bank was looking for opportunities to slow the pace of rate hikes . Bloomberg
     
• The US dollar firmed up above 110 on Wednesday, lifted by expectations that the FOMC will deliver another outsized interest rate hike and signal strong commitment to bringing down inflation.
  • The greenback also tracked Treasury yields higher, with the benchmark 10-year US yield rising above 3.5% to its highest since February 2011.
  • US policymakers are widely expected to deliver a third straight 75 basis point BUT some analysts betting on a bigger full percentage point hike.
  • Investors will zero in on the updated economic projections and dot plot estimates to guide the outlook for US interest rates, as well as Fed Chair Jerome Powell’s speech after the meeting for any hawkish surprises.
  • Also, the US economy has been showing relative strength in the face of slowing global growth, making the dollar more attractive for investors looking for safety. Bloomberg
     
• Crude oil futures held below $84/bl after tumbling almost 2% in the previous session.
  • Other central banks from Europe to Asia are also expected to raise interest rates further this week.
  • Industry data showed that US crude inventories rose by about 1 million barrels last week.
  • Meanwhile, some OPEC+ members flagged underinvestment in the oil sector as a major stumbling block for production and the main reason for the global energy crisis.
  • OPEC+ is now falling a record 3.58 million barrels per day short of its targets or about 3.5% of global demand.  Gulf Energy news
     
• Gold prices traded below $1,670/oz, hovering close to levels not seen since April 2020, weighed down by a strong dollar and Treasury yields ahead of another supersized interest rate hike from the US Federal Reserve aimed at curbing inflation.
  • ECB President Christine Lagarde also said on Tuesday that the ECB may need to raise interest rates to restrictive levels in order to stem demand and combat surging inflation.
    • Higher interest rates raise the opportunity cost of holding non-yielding bullion, denting its appeal.
    • Gold also lost its shine as a store of value in times of economic uncertainties as the US’ relative economic strength.
    • and the Fed’s aggressive stance against inflation lifted the dollar at the expense of other safe-haven assets. Kitco metals