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Morning NOTE

GOOD MORNING

The ZAR weakened throughout the session on the back of Risk aversion following unrest in China.

OPENING RATES

• USDZAR 17.0800
• EURZAR 17.7400
• GBPZAR 20.5100

SOUTH AFRICA

Fitch ratings

• Ratings agency Fitch’s affirmed SA’s  long-term foreign and local currency debt ratings at BB- and maintaining a stable outlook.
  • The agency has kept South Africa in sub-investment grade.
  • Fitch said that it took into consideration the recent over-performance of revenue and government’s strong efforts to control expenditure.
  • The agency, however, said that it expected GDP growth to slow from 1.6% this year to 1.1% next year.
  • The ongoing public sector wage demands have been viewed by Fitch as pointing to increased upward pressure on spending.
  • Government said that it was working to improve the efficiency of spending and remained committed to returning public finances on a sustainable path.

ESKOM DIESEL

• After a new diesel supply, Eskom said it’s managed to bring the power cuts back down to stage 1 and stage 2 from Monday.
  • Stage 1 continues until it ramps up to stage 2 overnight.
  • Eskom’s been battling with consistent breakdowns at several power stations along with limited emergency generation reserves. EWB

Phala-Phala

• DA  leader John Steenhuisen said President Cyril Ramaphosa has a case to answer on Phala Phala even if the Section 89 independent panel finds there’s no prima facie evidence.
  • The Section 89 independent panel will hand over its report to Parliament Speaker on Wednesday at 10am.
  • It will end an almost two-month-long process that saw the panel go through evidence to see whether the president committed an impeachable offence related to the burglary at his Phala Phala farm.
    • Steenhuisen said if the president is cleared by the panel, this won’t change the party’s position on an ad hoc committee.
      • “To pursue debts in your private business capacity I think is a clear conflict of interest. I think the president’s definitely got a case to answer there.” EWN

GLOBAL MARKETS

Stocks:

• US stock futures held steady on Tuesday after the major averages slumped during Monday’s session.
  • Futures contracts tied to the three major indexes were all trading near breakeven.
  • Hawkish remarks from Fed officials about the rate hike path also weighed on markets.
  • In regular trading on Monday, the Dow fell 1.45%, the S&P 500 dropped 1.54% and the Nasdaq Composite tumbled 1.58%, with all eleven S&P sectors finishing the day lower
• Equities and other risk assets came under pressure on Monday as protests against strict Covid restrictions in China spread across the country and clouded the global outlook.
  • Investors now await US house price and consumer confidence data later today, as well as Fed Chair Jerome Powell’s remarks on Wednesday.

Bonds:

• The yield on the US 10-year note, seen as a proxy for global borrowing costs, consolidated below 3.7%, a level not seen since October 4th,
  • as the narrative started to change from inflation and tightening to recession and the likelihood of a policy pivot.
  • Minutes from the last Federal Reserve meeting showed officials see the case for a slower pace of interest rate rises.
    • This outlook for monetary policy is decoupling from the one seen for Europe, in which the ECB reassured markets that its tightening cycle is far over despite the continent heading for a recession in the last quarter of 2022.
    • Germany’s 10-year Bund yield, the European benchmark, rebounded from a two-month low to around 1.9%.
• Investors now await Fed Chair Jerome Powell’s remarks on Wednesday.

YESTERDAY

• The Dow  declined 497 to 33,849
• The SP500 fell 62  3,963
• The Nasdaq declined 176 to 11,049

•  Image: Trading Economics

OVERNIGHT HEADLINES

Asia

• Asian markets higher following a clampdown on protests in both China and Hong Kong.
  • In Japan, the Nikkei 225 fell 0.48% to close at 28,028, sliding for the third straight session and tracking Wall Street lower.
    • Stocks weighed down by hawkish remarks from US officials who signalled that interest rates will continue to rise well into next year.
    • Investors also continued to track developments in the unrest over China’s strict Covid restrictions, with the country’s health officials set to hold a press conference later today.
• In China, the Shanghai Composite rallied 2.31% to close at an over 2-month high of 3,150, underpinned by speculations that China would further dial back Covid restrictions in response to widespread protests over the weekend.
  • The country’s securities regulator also lifted a ban on equity refinancing for listed property firms, boosting shares in the real estate and financial sector.

US Dollar

• The US dollar fell below 106.5, giving back some gains from the previous session as traders continued to assess the trajectory of Federal Reserve interest rate hikes.
  • The buck rallied after safe haven demand was triggered by widespread Covid protests in China started to ease.
  • The greenback gained sharply on Monday after St. Louis Fed President James Bullard said the central bank still “got a ways to go to get restrictive,”
    • He once again reiterated  that the policy rate needs to rise to at least 5% to bring down inflation.
    • New York Fed President John Williams also said that rates need to rise further and stay high through next year, while being open to a rate cut in 2024.
      • Still, the Fed is widely expected to slow the pace of tightening to 50 basis points in December after delivering four straight 75 basis point increases.
    • Investors also look ahead to a slew of US economic reports this week, as well as Fed Chair Jerome Powell’s speech on Wednesday. FX news

Crude oil

• Brent crude oil steadied near $83/bl as traders weighed a weakening demand outlook against speculations that OPEC+ may agree on another production cut in its next meeting to support oil prices.
  • The oil market remains lower due to  China’s strict Covid restrictions and ensuing protests that dampened the outlook for the world’s top crude importer.
  • Mounting risks of a global recession also continued to weigh on commodity markets.
  • This after more Fed officials showed that interest rates will continue to rise well into next year despite growth concerns.
  • Investors also continued to assess the impact of a planned price cap on Russian oil, though European governments failed to reach a consensus about the cap on Monday. Gulf energy news

 
Gold

• Gold climbed above $1,750/oz, recouping most of the losses from the previous session as the dollar retreated, while investors continued to assess the likely direction of US monetary policy.
  • The yellow metal dropped nearly 1% on Monday after US Federal Reserve officials signalled that interest rates will continue to rise well into next year.
  • Still, the Fed is widely expected to slow the pace of its rate hike to 50 basis points in December after delivering four straight 75 basis point increases.
  • Investors also look ahead to a slew of US economic reports this week, as well as Fed Chair Jerome Powell’s speech on Wednesday for fresh clues on the central bank’s tightening plans. Kitco metals report