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Morning NOTE

GOOD MORNING

The ZAR continued to weaken in the face of a rampant Dollar as US treasury yields continue to rise

OPENING RATES

• USDZAR : 19.6400
• EURZAR : 21.0700
• GBPZAR : 24.2000

SOUTH AFRICA

MCholera outbreak

• Two more people have died from the cholera outbreak as the country grapples with the acute diarrhoeal disease.
  • This brings the total number of deaths to 24.
  • The Department of Health’s Foster Mohale said the latest two people who succumbed to the waterborne disease are from Gauteng.
  • Hammanskraal – north of Pretoria has been the hardest-hit area countrywide since cholera was declared an official outbreak last weekend. EWN

#Russiagate

• SA report into alleged Russian arms deal due in eight weeks
  • US ambassador Reuben Brigety’s claims sent the rand tumbling more than 5% in four days.
  • President Ramaphosa has set up a three-member independent panel to investigate whether arms were picked up by a Russian vessel when it docked south of Cape Town in December.
  • The move follows allegations by the US ambassador to SA this month that weapons were loaded onto the Russian ship, the Lady R, at Simon’s Town port.
  • Reuben Brigety’s claims sent the rand tumbling more than 5% in four days, and the ensuing diplomatic row threatens to undermine South Africa’s trade agreements with the US
     
• In addition SA has to clear its name over arms to Russia allegations, says Fikile Mbalula

GLOBAL MARKETS

Stocks

• US equities surged on hopes of a debt ceiling deal, with Dow Jones up 329 points and S&P 500 rising 1.3%.
  • Nasdaq Composite jumped 2.2%, driven by Marvell’s 32% spike after strong revenue projections due to AI technologies, in line with Nvidia on Thursday.
  • Treasury Secretary Yellen announced the department expects to be able to make payments on US debts up until June 5, buying time for debt ceiling talks.
  • It comes after Biden and McCarthy announced a deal, that now needs to be ratified by congress.
  • The positive mood persisted despite hotter-than-expected PCE inflation data,
    • reinforcing bets the Federal Reserve will maintain its hawkish stance and keep interest rates elevated for an extended period.
    • Last  week, the Dow lost 1% while the S&P went up 0.3% and the Nasdaq notched its fifth straight week of wins.

Bonds

• US 10 Year Note Bond Yield was 3.82 percent on Friday May 26, according to over-the-counter interbank yield quotes for this government bond maturity.
   
• On Friday, US economic data supported a hawkish Fed stance
  • The personal consumption expenditure prices in the US rose more than expected in April,
    • reinforcing bets that the Federal Reserve will commit to its hawkish stance and leave rates elevated for a prolonged period.
    • Core PCE, which excludes food and energy, increased 0.4 percent month-over-month in April 2023, above market expectations of a 0.3 percent gain.
    • The annual rate, the Federal Reserve’s preferred gauge to measure inflation, unexpectedly accelerated to 4.7 percent, compared with market expectations of 4.6 percent.
    • The headline PCE also increased 0.4% and was up 4.4% from a year ago, higher than the 4.2% rate in March. source: U.S. Bureau of Economic Analysis

On Friday

• DOW gained 328 to 33,093
• SP500 added 54 to 4,205
• NASDAQ added 277 to 12,975

  image: Trading economics

OVERNIGHT HEADLINES

The US dollar

• The US dollar index held above 104 on Monday, hovering near its highest levels in ten weeks, supported by strong US economic data that bolstered expectations of further policy tightening.
• Data released on Friday showed that PCE prices in the US, the Federal Reserve’s preferred inflation gauge, rose more than expected in April.
• US consumer spending and durable goods orders also exceeded forecasts in April, indicating that the US economy remains resilient in the face of higher interest rates.
• Markets are now pricing in a higher chance that the Fed will deliver another 25 basis point rate hike in June, a shift from previous expectations for a pause in the tightening cycle.
• Meanwhile, President Joe Biden and House Speaker Kevin McCarthy reached an agreement in principle over the weekend to increase the US debt ceiling.
• It would allow the US government to “ pay its bills “  thus suspending the $31.4 trillion debt limit. Fx news

Asian markets

Regional markets higher across the board following news that Biden and McCarthy reached a deal to raise the ceiling and avoid a catastrophic US default

• In Japan, the Nikkei 225 Index jumped 1.7% to reach fresh 33-year highs above 31,400.
  • Investors cheered news that US President Joe Biden and congressional leaders reached a deal to raise the debt ceiling over the weekend.
  • Japanese stocks have outperformed their global peers amid strong domestic earnings,
    • while a weak yen boosted the outlook for the country’s export-heavy industries and made Japanese assets more attractive to foreign investors.
  • Technology stocks led the rally, with solid gains from Advantest (5.2%), Tokyo Electron (2%), SoftBank Group (2.5%), Renesas Electronics (3.7%) and IBIDEN (5%).
  • Other index heavyweights also advanced, including Mitsubishi UFJ (1.7%), Mitsui & Co (4.3%), Fast Retailing (1%), Nippon Yusen (3.4%) and Shin-Etsu Chemical (3.8%).
     
• In Australia, the ASX 200 Index jumped 1.1% to above 7,200 on Monday, rising for the second straight session in a broad share market advance.
  •  Investors cheered news that US President Joe Biden and congressional leaders reached a tentative deal to raise the debt ceiling over the weekend.
  •  Mining stocks led the market higher, with strong gains from BHP Group (2.6%), Fortescue Metals (3.8%), Rio Tinto (2.3%), Pilbara Minerals (3.6%) and Allkem (3%).
  • `Financial stocks also advanced, with the “Big Four” banks gaining between 1.2% to 1.6%.
  • Healthcare, energy, consumer-related and technology stocks gained as well.

Crude oil

• Brent crude futures rose toward $78/bl and US WTI crude futures rose above $73 per barrel on Monday.
  • Prices extending gains from the previous session after the US government reached a tentative debt ceiling deal, allaying fears of a default in the world’s biggest economy and oil consumer.
• US President Joe Biden and House Speaker Kevin McCarthy reached an agreement in principle over the weekend to suspend the $31.4 trillion debt limit and expressed confidence that both Democrats and Republicans will support the deal.
  • Investors are also bracing for an OPEC+ meeting later this week after Saudi Arabia Energy Minister Prince Abdulaziz bin Salman warned short sellers to “watch out” for potential consequences last week.
  • Meanwhile, Russian Deputy Prime Minister Alexander Novak said he expected no new steps from OPEC+ as the group just made production cuts this month. GULF ENERGY NEWS

Gold

• Gold prices gained for the first time in three sessions to $1948/oz after the Dollar rally stalled, following news that Biden and McCarthy reached an agreement to raise the debt ceiling and avoid a US default.
  • The dollar softened a bit and traders continue to follow the debt ceiling standoff.
    • However, data released last week, that included PCE, GDP and Weekly claims, strengthened the case for the Fed to hold interest rates higher for longer, pressuring the bullion down.
    • On the week, the yellow metal is on track to fall 1.5%. KITCO metals