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Morning NOTE

GOOD MORNING

The ZAR weakened after Fed chair Powell indicated that more interest rates are needed to bring inflation down to the 2% level.

OPENING RATES

• USDZAR : 18.3800
• EURZAR : 20.1500
• GBPZAR : 23.4200

SOUTH AFRICA

SA RUSSIA VISIT

• The Democratic Alliance (DA) wants the head of the president’s protection unit, major general Wally Rhoode to appear before Parliament.
• The DA wants him to explain last week’s futile trip of special forces to Poland, which became a diplomatic incident.
• Over a hundred people including a dozen journalists being detained in an aircraft for more than a day at the Warsaw airport.
• It meant they were unable to travel with and protect President Cyril Ramaphosa on his peace mission to Ukraine and Russia.

SA INFLATION

• After the recent SA inflation report, that showed another decline in the nominal rate of inflation to 6.3%
• South Africans could not be blamed for hoping that the SARB would end its rate hiking cycle.
• Unfortunately, SARB governor Lesetja Kganyago, threw cold water on that notion.
• He said, “… It is incumbent on the SARB to increase borrowing costs to tame sticky inflation, even if its actions gave rise to financial distress..” | Source : eNCA interview

GLOBAL MARKETS

Stocks
Global stocks lower after Jerome Powell called for higher rates to combat inflation.

• In regular trading on Wednesday, the Dow fell 0.3%, the S&P 500 dropped 0.52% and the Nasdaq Composite tumbled 1.21%, marking the third straight day of decline in all three benchmarks.
  • Stocks declining sharply following Federal Reserve Chair Jerome Powell’s testimony before Congress.
  • Powell testifying that higher interest rates are still on the table as they are necessary to moderate US economic growth and alleviate inflationary pressures.
  • At the same time, he said that the timing of rate moves will be decided at each meeting and it makes sense to move them at a more moderate pace. |source CNBC

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

• In the USA
  • The US 10 Year Note Bond Yield was 3.73 % on Thursday June 22, according to over-the-counter interbank yield quotes for this government bond maturity.
  • Traders bracing for day 2 of Fed chair Jerome Powell’s testimony after he called for more rate hikes to bring inflation down to the target level of 2%.
     
• In the UK
  • The yield on the UK 10-year gilt edged higher to approach 4.5% after a hot inflation print prompted bets of higher borrowing costs.
  • The headline inflation rate in the UK was unchanged at 8.7% last month, compared to forecasts it would slow to 8.4%, and coming above expectations for a fourth month.
  • Also, the core rate continued to march higher.
  • The Bank of England is expected to raise rates by at least 25bps on Thursday, with traders now seeing a 45% chance it will deliver a bigger 50bps hike.
  • Also, investors now see the base rate to reach 6% by December, which would mean another 150 basis points of increases this year.

Yesterday

• Dow -102 to 33,951
• SP500 -23 to 4,365
• Nasdaq  -165 to 13,502

  image: Trading economics

OVERNIGHT HEADLINES

Asian markets
Asian markets lower following comments by Jerome Powell that interest rates need to be adjusted higher to combat.

• In Japan, the Nikkei 225 Index fell 0.92% to close at 33,265.
  • Japanese stocks struggling for direction as investor sentiment took a hit after Federal Reserve Chair Jerome Powell said more rate increases are likely ahead as inflation remains too high.
  • Still, the benchmark indexes remained close to their highest levels in 33 years.
  • Traders citing strong domestic earnings and a weakening yen pushed Japanese shares to outperform global peers.
     
• In Australia, the ASX 200 Index dropped 1.63% to close at 7,196 on Thursday.
  • The index  sliding for the second straight session, with nearly all sectors participating in the decline.
  • Australian shares tracked losses on Wall Street overnight as investor sentiment took a hit after Federal Reserve Chair Jerome Powell said more rate hikes are likely ahead to combat inflation.
  • The comments pushing back against bets the central bank was close to the end of its tightening cycle. |Source : Reuters

Energy
Oil prices higher on the back of a decline in US inventories.

• US WTI crude futures held above $72/bl on Thursday after gaining nearly 2% in the previous session.
• Brent crude futures held around $77 /bl on Thursday after gaining 1.6% in the previous session,
  • Prices supported after industry data indicated a sharp drop in  inventories by 1.246 million barrels last week.
  • It was well below market expectations for a 433,000 barrel decline.
  • Analysts also noted muted increases in US oil output and production cuts by OPEC+ that could limit crude supply in the coming months and lift oil prices. |source : Gulf news

Metals
Precious metals lower after Fed Chair Powell’s testimony called for higher interest rates.

• Gold steadied above $1,930 an ounce on Thursday after Jerome Powell’s hawkish remarks were widely anticipated.
  • Investors remain cautious about upside risks to inflation and the prospect of further monetary tightening from major central banks. 
    • The gold market remains more or less steady in the face of a hawkish testimony by Federal Reserve Chair Jerome Powell.
    • But the longer gold trades sideways without new drivers, the more at risk it is to a deeper selloff, according to MKS PAMP.
  • Gold fell below $1,950 an ounce this week but found support at $1,940. 
  • August Comex gold futures were last trading flat on the day at $1,946.20 an ounce.
  • Earlier in the session, August futures hit a daily low of 1,929.30.|source : Kitco

Currencies
The Dollar steady around the 102 handle following day 1 of Jerome Powell’s testimony

• The US dollar index traded around 102 on Thursday, holding losses from the previous session and hovering near its lowest levels in six weeks.
• Federal Reserve Chair Jerome Powell’s remarks before Congress offered little surprise to the market.
  • Powell said further rate increases are likely ahead as inflation “remains well above” the Fed’s 2% target despite signs that price pressures have been cooling.
  • He added that the timing of rate moves will be decided at each meeting and it makes sense to move rates at a more moderate pace.
  • Analysts argued that a lot of hawkishness from Powell was already priced in, with markets betting the central bank would raise rates again by 25 basis point in July and stop hiking after that.
  • Investors now look ahead to more comments from Powell as he appears before the Senate Banking Committee on Thursday. | source : Trading economics
     
• The euro gained sharply against its peers to breeze past the $1.0900 mark.
  • The single currency reaching its strongest level since May 10, after the European Central Bank’s raised interest rates for the 8th consecutive time and signal that future rate hikes were on the table.
  • ECB President Lagarde expressed high confidence in the likelihood of further rate hikes in July.
  • She emphasized that the central bank had no intentions of pausing, in contrast to the more cautious stance of the Federal Reserve.
  • Alongside the interest rate hike, the ECB also upwardly revised its inflation projections while slightly lowering its economic growth forecasts. Source : Forex news