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Morning NOTE

GOOD MORNING

The ZAR reversed last week’s losses on Friday night on the back of improved Risk appetite on Wall Street.

OPENING RATES

• USDZAR 17.1000
• EURZAR 18.6200
• GBPZAR 21.2300

SOUTH AFRICA

• President Cyril Ramaphosa has said he has asked Eskom to hold off on the 18.65% tariff increase.
  • The power utility was earlier this month granted the tariff increase, amid prolonged bouts of load shedding.
    • Ramaphosa was speaking in the Free State on Sunday.
  • The National Energy Regulator of SA (Nersa) allowed Eskom to increase its tariff on 1 April.
  • The news came as the country suffers extended bouts of load shedding.
  • The announcement prompted a host of civil society organisations, citizens, small businesses, and opposition political parties,
    • to threaten legal action in an effort to ensure that load shedding and the hikes were stopped. NEWS 24
       
• Outgoing Eskom boss André de Ruyter said the City of Cape Town’s plans to escape dependence on the embattled parastatal coming to fruition, as it will “save us a lot of money”.
  • This comes as the City of Cape Town, in recent years, announced lofty plans to break away from Eskom, all in attempt to end crippling blackouts.
    • These plans includes the building of its first grid-connected solar plant.
    • Construction on the 7MW project is expected to begin this year, and the development is expected to come into operation by next year.
    • The plant, which will be situated in Atlantis, is also going to be the first of its kind, which will be connected to the province’s power grid.
    • The plant would supply 14.7 GWh of clean power annually for two decades. IOL NEWS
       
• AfriForum CEO Kallie Kriel said that its pebble bed power station project would not be a quick fix but would ultimately help address the country’s electricity problems.
  • The organistion said that it was fed up with the electricity situation and was going to start its own electricity generation company.
  • Kriel said that they were looking at a pebble bed reactor but legislation was the problem.
  • He said that he saw the cost to build its power station coming down and investors were keen.
  • But added that the biggest problem is to get the legislative framework changed.” EWN
     
• The SA RESERVE BANK MEETS ON THURSDAY TO SET RATES
  • Markets expecting another 50 bps hike
  • Taking the repo to 7.5%  and prime overdraft to 11%

GLOBAL MARKETS

Stocks:

• In regular trading on Friday, the Dow gained 1%, the S&P 500 jumped 1.89% and the Nasdaq rallied 2.66%, technology and consumer discretionary.
   
• US stock futures eased on Monday after the major averages staged a sharp rebound during Friday’s regular session,
  • Risk assets were boosted by expectations of less aggressive interest rate hikes from the Federal Reserve.
     
• Risk sentiment higher as after weak US data supported the case for a slower pace of monetary tightening,
  • with Fed Governor Christopher Waller backing a more moderate 25 basis point rate increase at the next meeting.
     
• Investors now look ahead to a slew of US economic data and more earnings reports this week. Bloomberg

Bonds:

• The yield on the US 10-year Treasury note, seen as a proxy for global borrowing costs, bottomed around 3.4%, close to levels not seen since September 2022.
• Investors continued to fret  as mounting fears of a sharp economic downturn and prospects of a less aggressive Federal Reserve boosted appetite for government debt.
   
• Data released Wednesday showed that Americans curbed spending while business investment fell, heightening concerns that the economy may be moving closer to recession.
  • At the same time, US PPI  slid by the most since the pandemic’s start, offering further evidence that inflation had already peaked while giving the Fed room to slow its monetary tightening.
     
• Money markets are now pricing an over 95% chance that the US central bank will hike rates by 25 basis points in February.
• Still, hawkish remarks from several Fed policymakers highlighted that the fight against inflation is far from over. Reuters

On Friday

• The Dow declined 252 to 33,044
• The SP500 fell 30 to 3,898
• The Nasdaq  lower by 104 points to 10,852

•   Image: Trading Economics

OVERNIGHT HEADLINES

US Dollar fell below 102 on Monday, sliding back to its lowest levels in almost eight months.

• Traders citing weakening US economic data and recent comments from Federal Reserve officials signalled a less aggressive monetary tightening ahead.
  • Latest data showed that US home sales plunged to a 12-year low in December as higher borrowing costs and economic uncertainties dampened buyer demand and sales activity.
• On the monetary policy front,
  • Fed Governor Christopher Waller said that upcoming rate moves and an expected continued decline in inflation left policy “pretty close” to being “sufficiently restrictive,”
    • He was certainly  favouring a smaller 25 basis point increase at the next meeting.
• Investors now look ahead to a flurry of US data that could guide the rates outlook including Q4 GDP growth rate, durable goods orders, the PCE price index and consumer data.
• The dollar weakened across the board, with the most pronounced selling activity against the euro on hawkish remarks from ECB officials. FX NEWS

Asian markets

• The Nikkei 225 Index jumped 1.33% to close at 26,906, boosted by a rally in technology stocks following a rebound on Wall Street.
  • Also expectations for less aggressive monetary tightening. Japanese shares also built on gains from last week as the Bank of Japan defied market pressure to tweak its ultra-low interest rate policy.
• Weighing on optimism was Japan’s finance minister, who warned of severe finances as BOJ struggles to contain yields.
  • Japan’s public debt is more than double its annual economic output, by far the heaviest burden in the industrialized world.
  • Finance Minister Shunichi Suzuki reiterated the government’s aim to achieve an annual budget surplus — excluding new bond sales and debt-servicing costs — in the fiscal year to March 2026.
  • The government, however, has missed budget-balancing targets for a decade.
  • With policy rates remaining at close to zero and inflation surprising at 4% , a spike in yields could be disastrous for the Japanese economy. CNBC

Brent crude oil fell toward $87/bl and US WTI also lower at $ 81.5/bl

• Investors continued to assess the global demand outlook and various risks to Russian supply.
  • However, trading is expected to remain subdued as many Asian markets were shut for the Lunar New Year holidays.
    • Earlier, Brent, the international oil benchmark, posted its second straight week of gains on Friday.
    • Traders citing China’s reopening from Covid and improved demand outlook in the world’s top crude importer as reasons.  
    • Softening US economic data and expectations that the Federal Reserve will slow the pace of its interest rate hike also supported the rally in risk assets.
  • On the supply side, investors continued to weigh the impact of additional sanctions on Russian energy flows as the Ukraine war rages on.
    • The International Energy Agency said in its latest outlook that Russia will shut in about 1.6 million barrels in daily output by the end of this quarter compared with pre-invasion levels. Gulf energy news

Gold declined to $1920/oz after earlier trading above $1,930 an ounce on Monday.

• Bullion  heading back to its strongest levels in nine months amid a general dollar weakness.
  • Traders citing weakening US economic data and recent comments from Federal Reserve officials signalled a less aggressive monetary tightening ahead.
  • Fed Governor Christopher Waller said that upcoming rate moves and an expected continued decline in inflation left policy “pretty close” to being “sufficiently restrictive”.
  • He was favouring a smaller 25 basis point increase at the next meeting.
• Investors now look ahead to a raft of US data that could guide the rates outlook including
• Q4 GDP growth rate, durable goods orders, the PCE price index and personal income and spending data.  Kitco metals