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Morning NOTE

GOOD MORNING

The ZAR continued to weaken on Friday after Fed Chair Jerome Powell confirmed inflation was “far above” their objective.

OPENING RATES

• USDZAR : 19.4400
• EURZAR : 21.0600
• GBPZAR : 24.2000

SOUTH AFRICA

• The Democratic Alliance (DA) in the Western Cape is calling on residents to vote against the Land Expropriation Bill saying it poses a threat to the economy.
  • Public comments are expected to be heard from Monday in the Garden Route District and be finalised in June at the City of Cape Town this year.
  • The bill proposal was passed by parliament last year and it’s now out for public participation.
  • The DA said the bill is going to discourage investors from investing into the country. Ewn
     
• SA’S SHAKY DIPLOMATIC TIES TO US LIKELY TO STIFLE LOCAL ECONOMIC GROWTH
  • The US is a major trade partner on the African continent, with South Africa being the second largest beneficiary of the African Growth and Opportunity Act after Nigeria.
  • South Africa’s diplomatic ties with the United States (US) continue to hang in the balance, threatening to throttle the growth of the emerging African economy.
  • This followed explosive claims made by US ambassador Reuben Brigety that South Africa sold arms and ammunition to Russia in its invasion of Ukraine.
  • This landed South Africa in hot water with the US, casting doubt on the future of trade relations between the countries. News24
     
• Eskom is asking consumers to delay starting up inverter and battery systems when electricity returns after load shedding to avoid a demand peak after every planned blackout.
  • Such peaks can destabilise the system and result in trips.
  • Inverter and battery systems, installed in many households to supplement the limited power supply from Eskom,
    • assist consumers by keeping on limited lights and appliances during load shedding. Moneyweb

GLOBAL MARKETS

Stocks

• US stock futures slipped on Monday as uncertainties surrounding the US debt ceiling negotiations continued to weigh on market sentiment.
  • Futures contracts tied to the three major indexes were all down about 0.1%.
  • Last week, the Dow rose 0.38%, the S&P 500 gained 1.65% and the Nasdaq Composite jumped 3.04%, as a strong rally in mega-cap technology names outweighed concerns about the US debt limit and stubborn inflation.
     
• Investors also look ahead to a slew of US economic reports this week including a second reading for first quarter GDP and the personal consumption expenditure inflation gauge.
  • Moreover, earnings reports are set to come from Zoom Video, Lowe’s and Dick’s Sporting Goods, among others.

Bonds

• The yield on the US 10-year Treasury note topped 3.6%, a level not seen in nearly two months, as the possibility of an interest rate hike by the Fed came again to the table.
  • Traders pushed the likelihood of a June hike to approximately 40% after Dallas Federal Reserve President Lorie Logan said current economic data doesn’t justify yet pausing the rate hiking cycle.
  • Retail sales data released this week showed consumer spending remained resilient and initial claims fell more than anticipated pointing out that the jobs market remains strong.
  • Meanwhile, President Biden expressed optimism about reaching a debt ceiling deal and said the US will not default. Bloomberg

On Friday

• DOW -109 to 33,428
• SP500 -6 to 4,191
• NASDAQ  -30 to 12,657 (cash)

  image: Trading economics

OVERNIGHT HEADLINES

The US dollar

• The US Dollar consolidated around 103 on Monday.
  • The Unit remaining well bid as traders cautiously awaited updates from the US debt ceiling negotiations as well as the outlook for Federal Reserve monetary policy.
    • Meanwhile, Fed Chair Jerome Powell said that inflation was “far above” the central bank’s objective,
    • but added that it may be unnecessary to raise interest rates further due to the stress in the banking sector.
  • Markets are currently betting that the Fed would pause its historic tightening campaign next month.
    • Investors also look ahead to a slew of US economic reports this week including a second reading for first quarter GDP and the personal consumption expenditure inflation gauge.
    • President Joe Biden and House Speaker Kevin McCarthy are set to continue discussions on Monday. FX news

Asian markets higher across with Japan once again leading the way as their export industries thrive on the back of a weak Yen.

• In Japan, the Nikkei 225 jumped 0.9% to close at 31,8087, with both benchmarks scaling their highest levels in over three decades, as Japanese markets looked to build on strong gains from last week.
  • Investors also digested data showing the country’s machinery orders, which is regarded as a leading indicator of capital spending in the coming six to nine months, unexpectedly declined in March.
     
• In China, the Shanghai Composite rose 0.39% to close at 3,296, recouping losses from the previous session as the People’s Bank of China maintained its key lending rates unchanged for the ninth straight month in May.
  • Still, investors are hoping that authorities would introduce more fiscal and monetary stimulus as April data showed that the country’s post-pandemic recovery started to lose steam.
  • Consumer-related stocks led the advance as authorities unveiled services and incentives to boost tourism activities. Reuters

Crude oil

• US WTI crude futures declined to $71/bl on Monday.
  • Prices sliding for the third straight session, as an uncertain outcome for the US debt ceiling negotiations and stubborn inflation prompted caution among investors.
  • US President Joe Biden and House Speaker Kevin McCarthy are set to continue negotiations on Monday.
  • Markets also coming to terms with Jay Powell’s comments that  that inflation was “far above” the central bank’s objective, stoking fears of further interest rate hikes.
  • Meanwhile, a bullish market outlook kept oil prices from further losses,
    • with the IEA  projecting that demand will exceed supply by 2 million barrels per day in the second part of 2023 with China accounting for a substantial portion of it. Gulf Energy news

Gold

• Gold traded around $1,975/oz on Monday, struggling for direction as traders cautiously awaited updates from the US debt ceiling negotiations.
  • In addition, traders continuing to assess the outlook for Federal Reserve monetary policy.
  • Markets on edge after Secretary Janet Yellen has repeatedly warned that the US could default on its debt as early as June 1 if a deal to raise the US debt ceiling is not reached.
  • Meanwhile, Fed Chair Jerome Powell said that inflation was “far above” the central bank’s objective.
  • Traders pricing  Markets are now pricing in an over 85% chance that the Fed would pause its interest rate hikes next month. Kitco metals