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Morning NOTE

GOOD MORNING

The ZAR consolidated near the lower end of the USDZAR range (19.2000) as market await the Fed minutes and SARB MPC on Thursday.

OPENING RATES

• USDZAR 19.1800
• EURZAR 20.6800
• GBPZAR 23.8700

SOUTH AFRICA

GORDHAN

• Minister of Public Enterprises Pravin Gordhan said the country will have to settle for load shedding of a ‘significant order,’ at least until the end of the year.
  • Delivering his budget address for his department in the National Assembly (NA), the minister said new capacity’s urgently needed, and the grid needed to be extended.
  • During the debate, Gordhan was slammed by opposition parties for the protracted problems of state-owned entities, saying he was overseeing a department of perennial failure.
    Gordhan said government’s R254 billion debt relief over the next three years would help Eskom to achieve its strategic objectives of improving energy supply. EWN
     
• Eskom is in for a tough time at the centralised bargaining forum as three unions have rejected its revised wage offer of 4.5%.
  • The power utility is locked in closed-door talks with Solidarity, the National Union of Mineworkers (NUM) and the National Union of Metalworkers (Numsa), who all want double-digit wage increases for the 2023/2024 financial year.
  • Eskom briefly broke the stalemate at the start of the third and final round of negotiations on Tuesday.
  • Sources privy to the wage negotiations have told Eyewitness News that NUM has lowered its wage demands from 12% down to 11%. EWN

SARB

• The SARB will hike the repo rate for the last time in the current cycle on Thursday, then the hit brakes.
  • But with the bank’s hiking cycle not expected to turn anytime soon, consumers can expect interest rates to remain at the current high level for some time.
  • The hiking cycle has delivered a combined 425 bps increase in the repo rate since November 2021 in a massive upward swing from the pandemic lows of 3.5% in 2021.
  • Its policy tightening action mirrored the moves of central banks across major economies as they staged a ferocious attack on stubbornly high inflation. MONEYWEB

GLOBAL MARKETS

Stocks

• US stock futures steadied on Wednesday as investors continued to monitor the debt ceiling negotiations.
  • Futures contracts tied to the three major indexes drifted flat to slightly positive.
     
• In regular trading on Tuesday, the Dow fell 0.69%, the S&P 500 dropped 1.12% and the Nasdaq Composite tumbled 1.26%.
  • Those losses came as there have been few indicators of progress being made on debt ceiling talks even as the risk of default estimated in early June looms.
  • On the data front, fresh PMIs showed private sector growth in the US beat forecasts, led by the services sector.
  • Investors now look ahead to the minutes from the Federal Reserve’s May meeting, as well as earnings reports from major firms including Nvidia, Snowflake and Uipath.

Bonds

• The yield on the US 10-year Treasury note rose to 3.75%, the highest since mid-March.
• On the monetary policy front, traders will continue to follow any comments from Fed officials on the Fed’s next steps.
• Market participants are currently assigning an 80% probability that the Fed will maintain the rates steady in June.
• Adding to higher yields is the impasse on a deal to raise the debt ceiling.

Yesterday

• DOW -231 to 33,055
• SP500 -47 to 4,145
• NASDAQ  -160 to 12,560

  image: Trading economics

OVERNIGHT HEADLINES

The US dollar

• The US dollar steadied around 103.5 on Wednesday.
  • Rising yields ensuring the Dollar hovering near its highest levels in two months as investors patiently waited for the outcome of the debt ceiling negotiations in Washington.
  • Hawkish remarks from Federal Reserve officials which bolstered expectations that interest rates will stay higher for longer also supported the dollar.
     
• In the latest commentary, Fed’s Bullard suggested the possibility of raising rates by another half-point this year, while Fed’s Kashkari described the decision to pause or hike rates in June as a close call.
  • Markets are currently pricing in a pause in the rate hike cycle next month, while scaling back bets on interest rate cuts this year.
  • Investors now look ahead to the minutes from the Federal Reserve’s May meeting on Wednesday.

Asian markets lower on US debt talk concerns as well as the Fed minutes, due later this evening.

• In Japan, the Nikkei 225 dropped 0.89% to close at 30,683 sliding for the second straight session as investors continued to book profits following a strong rally that brought the benchmark indexes to their highest levels since 1990.
  • Japanese shares also tracked losses on Wall Street overnight as lingering uncertainty over the debt ceiling negotiations in the US continued to weigh on sentiment.
  • Meanwhile, the Reuters Tankan sentiment index for manufacturers in Japan turned positive for the first time this year in May as the economy recovers from a COVID-induced slowdown.
  • Notable losses were seen from index heavyweights such as Rakuten Group (-2%), Oriental Land (-4.4%), Sony Group (-1%), Fast Retailing (-2.9%) and SoftBank Group (-2.4%). Trading economics
     
• In Australia, the S&P/ASX 200 Index fell 0.63% to close at 7,214 on Wednesday.
  • The index siding for the third straight session as risk sentiment deteriorated.
  • Australian shares also tracked losses on Wall Street overnight as lingering uncertainty over the debt ceiling negotiations in the US continued to weigh on sentiment.
  • Mining stocks led the retreat, with sharp losses from BHP Group (-1.9%), Fortescue Metals (-3.8%), Rio Tinto (-2.5%), Pilbara Minerals (-1.2%) and Mineral Resources (-3%).
  • Other index heavyweights also declined, including CSL Ltd (-1.1%), Macquarie Group (-1.6%) and Xero (-1.5%).
  • Meanwhile, energy and gold companies advanced on firmer prices in the underlying commodities.
  • Travel stocks also gained on an improving outlook for the sector. Reuters

Crude oil

• US WTI crude futures jumped toward $74 /BL on Wednesday, rising for the third straight session to the highest levels in three weeks.

• It was a warning from the Saudi energy minister stoked fears of further OPEC+ production cuts.
• Saudi Arabia’s Prince Abdulaziz bin Salman told speculators to “watch out,” in what analysts took as a signal that OPEC+ could consider further output cuts at a meeting on June 4.
  • Meanwhile, industry data showed that US crude inventories declined by about 6.8 million barrels last week, defying forecasts for a 0.525 million increase.
    • Gasoline inventories also dropped by about 6.4 million, while distillate inventories fell by about 1.8 million.
    • Those data came ahead of the Memorial day holiday which traditionally marks the beginning of US peak summer travel.   Gulf energy news

Gold

• Bullion recovered to hold  below $1,980/oz on Wednesday, remaining under pressure from a stronger dollar amid hopes that the US would avert a debt default and hawkish remarks from Federal Reserve officials.
  • President Joe Biden and House Speaker Kevin McCarthy signalled cautious optimism that a deal to raise the debt ceiling would be reached. 
    • On the monetary policy front, Fed’s Bullard suggested the possibility of raising rates by another half-point this year,
      • while Fed’s Kashkari described the decision to pause or hike rates in June as a close call.
  • Markets have scaled back bets on US interest rate cuts this year, with rates seen holding at around 4.7% by December. Kitco metals