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Morning NOTE

GOOD MORNING

The ZAR continued to weaken after US PCE data surprised to the upside, confirming the Fed’s recent ultra-hawkish bias.

OPENING RATES

• USDZAR 18.4400
• EURZAR 19.4400
• GBPZAR 21.9900

SOUTH AFRICA

GREY LISTING

• South Africa has been placed on FATF’s grey list because it does not have sufficient mechanisms in place to monitor and combat money laundering and terrorist financing activities.
  • The country undertook to work with the FATF to identify strategies and time frames to improve its monitoring mechanisms.
  • South Africa has been greylisted by a global anti-money laundering watchdog.
  • The decision is expected to hike the cost of doing business in the country. 
  • Finance Minister Enoch Godongwana says SA will “swiftly and effectively” work to address all deficiencies. NEWS24

DE RUYTER FALLOUT

• ANC sectary-general Fikile Mbalula has called former Eskom CEO André de Ruyter’s claims of systematic corruption and political interference within the struggling power utility as baseless.
  • This comes after De Ruyter in a tell-all interview on eNCA said that the collapsing utility was a feeding trough for the ANC.
  • Mbalula, who addressed the media in Cape Town on Thursday, has now hit back, saying that De Ruyter was making the claims in order to mask his own inefficiencies and failures at the power utility.
  • The ANC secretary-general wants De Ruyter to prove that the governing party is benefiting from Eskom’s corruption, claiming that De Ruyter had tarnished the party’s image.
  • The ANC has demanded that former Eskom chief executive Andre de Ruyter formally report to police explosive allegations he made in a TV interview this week – or face charges himself.
    • The ANC fired the salvo at de Ruyter on Sunday, saying it was consulting its lawyers following allegations that among others a senior ANC politician,
      • who he would not name, was involved in large-scale criminality at the embattled power utility.
  • Section 34 of the Prevention and Combating of Corrupt Activities (Precca) Act places a duty on persons of authority,
    • including CEOs, to report certain offences where the quantum of the corruption, theft, fraud, extortion, forgery or uttering a forged document is more than R 100,000. Ewn
• Political party, ActionSA said an affidavit by Eskom showed that the governing ANC was directly responsible for not doing enough to make sure that the country’s power needs were addressed.
  • The affidavit was deposed as part of the court case launched by the United Democratic Movement (UDM) and 17 others to, among others,
  • declare the government’s response to load shedding unconstitutional and a breach of fundamental human rights. Ewn

GLOBAL MARKETS

Stocks:

• US stock futures were little changed on Monday after the major averages suffered significant losses last week.
• Traders citing hotter-than-expected US inflation data bolstered expectations that the Federal Reserve will need to continue raising interest rates.
• Futures contracts tied to the three major indexes drifted flat to slightly negative.
• In regular trading on Friday, the three major averages all declined at least 1% as the latest PCE reading, the Fed’s preferred inflation gauge, pointed to persistent upward price pressures in the US.
• That brought the Dow to a 2.99% weekly fall, while the S&P 500 and Nasdaq Composite dropped 2.67% and 3.38%, respectively.
• Investors also heeded signals from Fed officials who reiterated the central bank’s tough stance on inflation.
• Markets now look ahead to more US economic reports such as consumer confidence and the ISM manufacturing survey, as well as corporate earnings from major US retail companies.

Bonds:

• US 10 Year Bond Yield was 3.95 percent on Monday February 27, according to over-the-counter interbank yield quotes for this government bond maturity.
• Yields remained elevated after the latest data showed the Fed’s preferred gauge to measure inflation accelerated more than expected in January.
• The data supporting the case for further monetary tightening from the Federal Reserve.
• The latest data showed core PCE prices jumped by 0.6% in January, the most since August, and above market estimates of 0.4%.
• The annual rate accelerated to 4.7% from 4.6% and surpassed forecasts of 4.3%.

On Friday

• The Dow fell 336 to 32,816
• The SP500 fell 42 to 3,970
• The Nasdaq  fell 195 to 11,394

:  image: Trading economics

OVERNIGHT HEADLINES

The US Dollar

• The American Dollar rose above 105, the highest in seven weeks.
  • Traders citing the latest data showed the Fed’s preferred gauge to measure inflation accelerated more than expected in January,
    • supporting the case for further monetary tightening from the Federal Reserve.
  • The latest data showed core PCE prices jumped by 0.6% in January, the most since August, and above market estimates of 0.4%.
  • The annual rate accelerated to 4.7% from 4.6% and surpassed forecasts of 4.3%.
    • On the week, the DXY is up 1%, on track for a fourth consecutive weekly gain.
  • At the same time, the dollar has also benefitted from safe-haven demand stemming from growing geopolitical tensions between the US and China over the war in Ukraine.

Asian markets

• Asian equity markets fell on Monday, tracking losses on Wall Street as hotter-than-expected US inflation data reinforced the case for further monetary tightening from the Fed.
  • Investors are also monitoring key economic developments in Asia, with BOJ governor nominee Kazuo Ueda set to appear before the upper house today.
  • Shares in Australia, Japan, South Korea, Hong Kong and China declined.
• In Japan, the Nikkei 225 fell 0.11% to close at 27,424, affected by negative cues on Wall Street as hotter-than-expected US inflation data caused a sell-off in stocks.
  • Expectations that the Federal Reserve will need to continue raising interest rates.
  • Investors also remained cautious amid Bank of Japan governor nominee Kazuo Ueda’s appearance before the upper house on Monday,
    • while digesting data which pointed to prolonged economic weakness in Japan.
  • Notable losses were seen from technology stocks including Tokyo Electron (-1.9%). Reuters

Crude oil

• Brent crude futures steadied around $83/bl, holding recent gains as the prospect of additional oil supply cuts from Russia outweighed rising crude inventories in the US.
  • In addition , market concerns about persistent inflation and higher interest rates.
    • Russia announced plans to cut oil exports from its western ports by up to 25% in March compared to February, exceeding its previously announced output curbs of 500,000 barrels per day.
    • On top of that, investors expect China’s oil imports to hit a record high in 2023 amid rising demand for transportation fuel and as new refineries come online.
  • Meanwhile, the latest EIA report showed that US inventories rose by 7.648 million barrels to 850.6 million in the week ending February 17th, the highest level since September.
    • A hotter-than-expected US PCE reading, the Fed’s preferred inflation gauge, also bolstered expectations of further monetary tightening that raises recessionary risks. Gulf energy report

Gold

• Gold traded around $1,810 /oz on Monday, hovering at its weakest levels in two months.
  • Traders citing  stronger-than-expected US economic data reinforced the case for further monetary tightening from the Federal Reserve.
    • US core PCE prices, the Fed’s preferred inflation gauge, accelerated more than expected in January.
  • Over the weekend, US Treasury Secretary Janet Yellen told Reuters that the hot inflation reading signals that the fight against inflation “is not a straight line” and more work is needed.
    • Cleveland Fed President Loretta Mester also said on Friday that “it’s going to take more effort on the part of the Fed to get inflation on that sustainable downward path to 2%.
    • ” Higher interest rates raise the opportunity cost of holding non-yielding bullion, making it less attractive for investors. Kitco metals report