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Morning NOTE

GOOD MORNING

The ZAR recovered from earlier lows to reach 18.1100 following a market friendly SA budget.

OPENING RATES

• USDZAR 18.2200
• EURZAR 19.3400
• GBPZAR 21.9800

SOUTH AFRICA

A better budget than expected

• It provides tax relief for working South Africans while restructuring Eskom debt – all in a low-growth environment.
  • Eskom was allocated a massive R254 billion in debt relief over the next three years in the Budget on Wednesday.
  • The allocation is aimed at relieving the extreme pressure on Eskom’s balance sheet.
  • This will enable Eskom to restructure and undertake the investment and maintenance needed to support security of electricity supply.
     
• Finance Minister Enoch Godongwana acknowledged in his Budget speech that domestic load shedding “has become more persistent and prolonged. 
  • Thus impacting on service delivery and threatening the survival of many businesses”.
• “Record levels of load shedding were experienced in 2022 – 207 days compared to 75 days in 2021. Moneyweb

De Ruyter steps down immediately following an explosive interview.

• The utility said that CEO Andre de Ruyter’s departure followed a special board meeting on Wednesday where it was mutually agreed that his notice period would be scrapped.
• However, his departure follows a controversial interview with eNCA journalist, Annika Larsen, where he implicated the ANC in corruption at Eskom but gave no further evidence or details.
  • But he said that he approached a minister to express his concerns about the $8.5 billion allocated at COP27.
  • He said that this was their response.
  • “The response was, essentially, you have to be pragmatic, you have to in order to pursue the greater good, you have to enable some people to eat a little bit.” EWN

GLOBAL MARKETS

Stocks:

• On Wednesday, the Dow and S&P 500 fell 0.26% and 0.16%, respectively, while the Nasdaq Composite rose 0.13%.
  • Those moves came after the latest Federal Reserve meeting minutes showed that policymakers largely agreed that more rate increases would be needed,
    • to bring inflation back down to target.
  • The minutes stated that inflation “remained well above” the Fed’s 2% target.
    • In addition, the labour market “remained very tight, contributing to continuing upward pressure on wages and prices.”
       
• Investors now await the latest GDP and weekly jobless claims data on Thursday and PCE on Friday. Bloomberg

Bonds:

• The yield on the US 10-year remained above 3.9%, as investors continue to bet on higher interest rates following the last FOMC meeting minutes.
  • The majority of policymakers agreed to slow down the pace of rate increases, delivering a smaller 25 bps hike in February.
  • BUT
  • They noted that upside risks to the inflation outlook remained
    • and that rates would need to move higher to bring inflation is clearly on a path to 2%.  Reuters

FOMC MINUTES

• Almost all FOMC participants agreed that it was appropriate to raise the target range for the federal funds rate by 25bps at the first monetary policy meeting of 2023.
• Although a few officials favoured raising it by 50bps. This was according to the FOMC  minutes from the last meeting.
• All participants continued to anticipate that ongoing increases would be appropriate, until data provided confidence that inflation was on a sustained downward path to 2%.
• They were in agreement that this was likely to take some time.

Yesterday

• The Dow  declined 84 points to 33,045
• The SP500 fell 6.29 to 3,991
• The Nasdaq higher by 14 to 11,507

:  image: Trading economics

OVERNIGHT HEADLINES

The Dollar

• The dollar index firmed up near 104.5 on Thursday.
• It was hovering near its strongest levels in seven weeks as FOMC minutes showed that policymakers largely agreed to keep raising interest rates to bring inflation back down within target.
• The minutes stated that inflation “remained well above” the Fed’s 2%.
• Some Fed officials also indicated last week that they are open to a bigger 50 basis point rate hike at the central bank’s meeting in March.
• Investors now look ahead to the latest US GDP, weekly jobless claims data on Thursday AND the much watched PCE on Friday. Fx news

Asian Markets lower following the FOMC minutes that confirmed members are in agreement for more rate hikes.

• In Japan the Nikkei 225 dropped 1.34% to close at 27,104, extending losses from the previous session.
  • The index tracking sharp losses on Wall Street overnight, as investors worried  about the prospect that the FED will continue hiking rates to tame inflation.
  • Technology stocks led the retreat, with sharp losses from SoftBank Group (-2.2%)
• In Australia the ASX 200 fell 0.4% to close at 7,285 on Thursday, sliding for the third straight session, with mining and energy stocks leading the market lower on weaker commodity prices.
  • Worries about more monetary tightening from the Fed, as central banks in major economies continue to fight inflation.
  • Heavyweight iron ore and gold miners led the retreat, with sharp losses from BHP Group (-3.1%), Rio Tinto (-1.4%), and Northern Star Resources (-2%).
  • Energy firms also declined following a sharp drop in oil prices, with sector leaders Woodside Energy and Santos losing 0.6% and 1.1%, respectively. Reuters

Crude oil

• US WTI crude futures traded near $74/bl after losing more than 3% in the previous session.
• Prices  remaining under pressure as minutes from the Fed’s  last meeting showed that policymakers largely agreed to keep raising interest rates to bring inflation back down within target.
• Tightening financial conditions, and risk of a recession, heighten the risk of a demand-sapping global recession.
• Industry data also showed that US crude inventories jumped by 9.9 million barrels last week, far exceeding expectations for a 1.2 barrel increase. Gulf Energy news

Gold

• Gold held its recent decline to below $1,830/oz on Thursday, hovering near its weakest levels in eight weeks.
• Bullion traders worried  as minutes from the Federal Reserve’s last meeting showed that policymakers largely agreed to keep fighting inflation with more interest rate hikes.
• The minutes stated that inflation “remained well above” the Fed’s 2% target and the labour market “remained very tight”.
• Fed officials also indicated last week that they are open to a bigger 50 basis point rate hike at the central bank’s meeting in March.
• Investors now look ahead to the latest US GDP and weekly jobless claims data on Thursday. Kitco metals report