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Morning NOTE

GOOD MORNING

The ZAR traded in a wide range following the FOMC rates decision, closing near the weakest end of its range at R17.7500/$.

OPENING RATES

• USDZAR 17.7600
• EURZAR 17.4300
• GBPZAR 19.9400

SOUTH AFRICA   

• SARB MPC DAY

• Efficient Group chief economist, Dawie Roodt, says consumers should brace for another massive interest rate hike.
  • The South African Reserve Bank (SARB) is expected to announce the interest rates on Thursday following a meeting by the Monetary Policy Committee.
  • The latest announcement comes amid attempts to tame inflation.
  • Roodt expects the reserve bank to hike the interest rates by 75 basis points or 100 basis points. EWN
• Former President Thabo Mbeki has placed blame for this and other problems, including the ailing economy, on a lack of quality leadership in both government and society.
  • This as President Cyril Ramaphosa and his government continue struggle in solving the crisis at Eskom. News 24
• Business Unity South Africa (Busa) has made an urgent plea for government to step in and take certain measures.
  • Busa has highlighted a number of measures, including a short-term plan.
  • The idea is to urgently enable Eskom to purchase power from all available resources and to step up repairs to plants. IOL

GLOBAL MARKETS

Stocks:

• The Dow lost over 500 points in a volatile session on Wednesday, and the S&P 500 and the tech-heavy Nasdaq tumbled roughly 1.8% each.
  • Traders digested the FOMC’s rate decision and Powell’s gloomy outlook for the economy.
  • The Fed delivered a 75 bps rate hike for a third consecutive meeting while signalling further increases in the next few months.
  • The terminal rate, the peak spot where the federal funds rate is, is now seen at 4.6%, with policymakers anticipating cutting interest rates in 2024 and extending that into 2025.
  • Officials also significantly cut their outlook for 2022 economic growth, expecting just a 0.2% gain in GDP, down from 1.7% in June.

Bonds:

• The US 10-year Treasury yield briefly broke above the 3.61% mark for the first time since April 2011 before consolidating around 3.5%.
  • This after the Federal Reserve ratcheted up its campaign against inflation by raising its federal-funds rate by 0.75 percentage points.
  • The terminal rate, the peak spot where the federal funds rate is, is now seen at 4.6%, with policymakers anticipating cutting interest rates in 2024 and extending that into 2025.
  • Officials also significantly cut their outlook for 2022 economic growth, expecting just a 0.2% gain in GDP, down from 1.7% in June.
• Adding to market nerves were the 2-year Treasury yield surged above 4.1%, the highest since 2007.

YESTERDAY

• The Dow declined  522 to 30,183
• The SP500 66 points to 2,789
• The Nasdaq  fell 204 to 11,220

• Image: Trading Economics

OVERNIGHT HEADLINES

• Asian markets all traded lower across the region following a hawkish Fed who once again hiked 75 bps.

  • This was followed by more hawkish guidance by Jerome Powell.
    • In Japan, the Nikkei 225 fell 0.58% to close at 27,154, hitting their lowest levels in over two months and tracking losses on Wall Street.
      • The US Federal Reserve delivered another large interest rate hike and signalled further increases ahead.
        • Investors also digested the Bank of Japan’s policy decision after it maintained ultra-low interest rates and remained dovish in its outlook.
      • This decision defying a global wave of policy tightening and risking further yen depreciation and capital outflows resulting in a sharp drop in the YEN.
    • In Australia, the 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.
      • The RBA announced it was looking to slow the pace of rate hikes, whereas the FED stayed the course, resulting a rampant dollar vs the Aussie.
         
• The Dollar index surged to as high as 111.5 on Wednesday, a new high since June 2002.
  • The rally after the US Federal Reserve raised benchmark interest rates by another 75 bps and indicated it will keep hiking well above the current level.
  • The federal funds rate is now at its highest since early 2008, and new projections show it reaching 4.4% by the end of 2022 before topping out at 4.6% in 2023.
  • The currency today received an extra boost from safe-haven flows after President Putin announced a partial military mobilization in Russia, in a significant escalation of the conflict in Ukraine. Bloomberg
     
• The Euro tumbled more than 1% to below 0.9833, hovering around its weakest level since 2002.
  • The Fed rate hike weighing on the single currency as the rate gap widens.
  • The ECB raised interest rates by an unprecedented 75 bps in September, and is expected to deliver between a 50- and a 75-bps rate hike in October despite recessionary risks.
  • The bloc has been grappling with an unprecedented energy crisis and a recession looks almost inevitable to analysts, although the central bank steered clear of suggesting that a contraction may take place.
  • The region is under even more pressure after Russian President Vladimir Putin announced a partial military mobilization in Russia, a move that is seen as an escalation by the West. Reuters
     
• Crude oil WTI  bottomed near $83 /bl, and a dramatic reversal from its daily highs of $86.6 as investors weighed a weakening global economic outlook after  the Fed’s rate decision.
  • This was exacerbated by a stronger dollar against tighter supplies from Russia and OPEC.
    • Fears mount that an aggressive tightening from major central banks worldwide would derail global growth and dampen energy demand.
    • After President Vladimir Putin announced a partial military mobilization in Russia, placing a floor under prices were concerns of further supply disruptions.
      • In other news, EIA data showed that the US crude oil inventories rose 1.142 million barrels last week, below market expectations of a 2.161 million increase. Gulf energy news