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Morning NOTE

GOOD MORNING

The ZAR strengthened sharply on the back of improved global risk sentiment and market “friendly” SA MTBPS.

OPENING RATES

• USDZAR 17.9200
• EURZAR 18.0400
• GBPZAR 20.8000

SOUTH AFRICA

• The Budget …
   
  e-tolls
• The national government has passed the ball on the controversial e-toll scheme to the Gauteng provincial government for a final decision on its retention or possible scrapping.
• Finance Minister Enoch Godongwana said on Wednesday that to resolve the funding impasse, the Gauteng provincial government has agreed to contribute 30% to settling SANRAL’s debt and interest obligations .
• The national government committing to cover  70% of this debt and interest obligations.

  Debt

• Approximately R30 billion in conditional allocations in the current year to bail out Denel,
• the SANRAL  and Transnet were proposed in the Medium-Term Budget Policy Statement (MTBPS) published on Wednesday.
• In addition, government plans to take over a portion of Eskom’s R400 billion debt to enable the power utility to restructure, but says it is applying strict conditions to safeguard public money.
   
  Welfare spending.
• The budget allows for  increased spending for social grants by R36 billion.
• It will  enable the welfare department to extend the R350 monthly grant until March 2024.
• The stipend, which is being paid to 7.4 million people,
• Many see this is as a precursor to the national income grant being proposed.
• However, National Treasury has warned that such a program could undermine the sustainability of public finances and draw funds away from other priorities unless the required funding is sourced. 

  GDP

• And finally, in tabling its 2022 Medium-Term Budget Policy Statement (MTBPS) on Wednesday,
• National Treasury said it expects real GDP growth to come in at 1.9%, lower than the 2.1% initially forecast in the main budget in February this year.

GLOBAL MARKETS

Stocks:

In regular trading on Wednesday, the Dow inched up 0.01%, while the S&P 500 and Nasdaq Composite dropped 0.74% and 2.04%, respectively.

• Markets tracking interest rates even though, investors digested mixed earnings results, with big technology names so far disappointing market expectations.
• Futures contracts tied to the three major indexes were all trading in positive territory.
• In extended trading, Facebook-parent Meta Platforms sank 20% after missing third quarter earnings estimates and offering weak guidance for the fourth quarter.
  • Still, expectations that the Federal Reserve will turn less aggressive later this year kept markets supported. CNBC

Bonds:

• The US 10YT yield, bottomed around 4%, on hopes the Federal Reserve could slow down the pace of interest rate hikes later this year.
  • Speculation about a possible policy pivot followed a report from the Wall Street Journal that hinted some Fed officials are concerned about overtightening.
  • San Francisco Fed President Mary Daly echoed this view, saying that the central bank should start discussing the potential of a smaller rate hike in December.
  • On top of that, soft US economic data signalled that stubbornly high inflation and tighter financial conditions are already impacting the economy while fuelling concerns about a recession.
  • Still, treasury yields remain close to their highest since June 2008, as the Federal Reserve has already raised its fed fund futures by 300 basis points since March, one of the fastest moves in history. Reuters

YESTERDAY

• The Dow added 2.37 points to 31,839
• The SP500 fell 28 to 3,830
• The Nasdaq  fell 228 to 10,970

•  Image: Trading Economics
   

OVERNIGHT HEADLINES

Asian markets lower after Facebook/Meta disappointed after hours with the stock dropping 20%.

• In Japan, The Nikkei 225 fell 0.32% to close at 27,345, retreating from one-month highs and tracking a weak session on Wall Street
  • In the US overnight as investors digested mixed corporate earnings results.
  • Investors also awaited the Bank of Japan’s monetary decision on Friday, where it is expected to maintain its policy of ultra-low interest rates.
  • Financial stocks led the market lower, with losses from heavyweight banks such as Mitsubishi UFJ (-2.6%), Sumitomo Mitsui (-2.4%).
  • Other index heavyweights also declined, including Toyota Motor (-1%).
• In China, The Shanghai Composite fell 0.55% to close at 2,983 on Thursday and giving back gains from the previous session.
  • This as Chinese cities doubled down on Covid control measures in a bid to arrest widening outbreaks.
  • Investors also digested data showing industrial profits in China fell 2.3% YoY in the first nine months of the year as Covid disruptions and a weak property sector weighed on corporate earnings.
  • Mainland stocks came under pressure this week in the aftermath of the Communist Party Congress where President Xi Jinping consolidated power.
  • Investors remain fearful that he will sacrifice growth for ideology. High-growth new energy, healthcare and consumer stocks led the decline.  Reuters
     
• The dollar traded 110 on Thursday after sliding more than 2% in the prior two sessions.
  • On the back of growing expectations that the Federal Reserve would start slowing the pace of interest rate hikes later this year.
  • Investors also cautiously awaited policy decisions from the European Central Bank and the Bank of Japan this week.
  • The Fed is widely expected to deliver its fourth straight 75 basis point rate increase in November.
  • But markets started to speculate that it would turn less aggressive in December amid concerns about overtightening and its impact on growth.  Fx news
     
• Brent crude futures traded near $96 per barrel on Thursday after gaining nearly 3% in the previous two sessions.
  • Prices supported by data showing record US crude exports.
  • The US exported a record amount of crude and fuel last week, even as fuel inventories hit seasonal lows in domestic markets, adding to concerns about tight supply.
  • A sharp retreat in the dollar also supported oil prices, as it makes greenback-priced commodities less expensive for buyers holding other currencies.
  • Meanwhile, Bloomberg reported that the US and EU are likely to settle for a more loosely policed cap at a higher price than previously planned. Gulf energy news
     
• Gold prices traded above $1,660 an ounce on Thursday, the highest levels in two weeks, as the dollar and Treasury yields retreated sharply.
  • The Dollar lower on growing expectations that the US Federal Reserve would slow the pace of rate hikes later in the year.
    • The Fed is widely expected to deliver its fourth straight 75 basis point rate increase in November,
    • But markets speculating that it would turn less aggressive in December amid concerns about overtightening.
    • Soft US data this week supported such a stance, signalling that tighter financial conditions are already having an impact on the economy.

• NB: IMF Managing Director Kristalina Gerogieva also called on central banks to keep raising interest rates further to fight inflation until they hit a “neutral” level.  Bloomberg