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Morning NOTE

GOOD MORNING

The ZAR opening stronger after weaker than expected US PCE data indicated the FED hikes are having the desired impact on inflation.

OPENING RATES

• USDZAR : 18.8400
• EURZAR : 20.5200
• GBPZAR : 23.8800

SOUTH AFRICA

SA RUSSIA ARMS

• The South African government has not authorised the sale of arms to Russia since 2020.
  • This is according to Digital Communications Minister Mondli Gungubele, who is also chairperson of the National Conventional Arms Control Committee (NCACC).
  • US Ambassador to South Africa Reuben Brigety had alleged that South Africa sold arms to Russia via the US-sanctioned Russian naval vessel, the Lady R.
  • The SA government has denied all the allegations. SOURCE : EWN

SA GRID RULES FOR IPP

• The additional requirements contained Eskom’s interim grid access rules will increase the amount investors in independent power producer (IPP) projects must spend before knowing if they will be able to use the national grid to evacuate the energy to their buyer .
• That will increase the risk significantly. “They will rather go to other countries,” says Brian Day, chair of the South African Independent Power Producers Association (Saippa).
• This does not bode well for the rapid deployment of privately generated electricity to end load shedding and comes shortly after the virtual failure of Bid Window 6 (BW6) of the government’s plan. Source : Moneyweb

AGOA

• Agoa: ‘We have a narrow window of opportunity.
• BLSA CEO explains why government is running our of time to clarify its stance on Russia, and how tens of thousands of jobs hang in the balance.
• Next week the process begins in the United States Congress to review the eligibility of countries for benefits under the African Growth and Opportunity Act.
• This legislation provides duty-free access for certain African countries, including South Africa, to the enormous US market.
• The legislation has been key to building our exports ranging from vehicles to citrus fruit. Billions of rands of economic activity and tens of thousands of jobs in South Africa depend on those exports. Source : Moneyweb

GLOBAL MARKETS

Stocks
Equities well supported on Monday following Friday’s weaker than expected US PCE report.

US stock futures were little changed on Monday as investors look for fresh catalysts in the second half of the year.

• On Friday, the Nasdaq Composite closed out its best first-half performance since 1983, surging 31.7%.
• The S&P 500 also rallied 15.9% for its best first-half since 2019 while the Dow climbed 3.8%.
  • Those gains came on the back of a strong rally in technology stocks amid enthusiasm around artificial intelligence and related companies.
     
• Signs that the US economy remains resilient in the face of persistent inflation and higher interest rates also boosted market sentiment.
  • Investors now look ahead to the latest ISM Manufacturing PMI and S&P Global Manufacturing PMI for June on Monday.
  • Traders will also watch Tesla after the electric vehicle maker reported higher-than-expected delivery and production numbers. Source : CNBC

Bonds
Bond yields consolidating after Friday’s US PCE report.

• The yield on the US 10-year fell back below 3.85%.
  • It was down from an over three-month high of 3.892 touched earlier in the session.
  • Traders citing a slowdown in PCE inflation offered fresh evidence of easing price pressures due to the Federal Reserve’s aggressive policy tightening.
  • The PCE price inflation cooled to 3.8% in May, the lowest since April 2021, while the core index edged down to 4.6%, still pointing to high cost pressures.
  • At the same time, personal spending growth eased to a meagre 0.1%.
     
• Chair Powell recently reinforced that interest rates will rise again this year, signalling the possibility of at least two more rate hikes. Source : Reuters

On Friday

• DOW +285  to 34,407
• SP500 +53 to  4,450
• NASDAQ  +196 to 13,787

image: Trading economics

OVERNIGHT HEADLINES

Asian markets
EEastern markets sharply higher on the first day of trading for July, following Friday’s strong half-year close on Wall Street.

• In Japan, the Nikkei 225 surged 1.7% to 33,753, closing at its highest levels in 33 years amid a renewed rally in technology stocks.
  • Japanese shares also tracked gains on Wall Street Friday as cooler-than-expected US inflation for May.
  • Traders citing  the Fed’s aggressive tightening campaign is having its desired outcome.
  • Meanwhile, investors digested data showing business sentiment in Japan improved in the second quarter, while manufacturing activity contracted in June.
     
• In Australia, the ASX 200 Index rose 0.59% to close at 7,246 on Monday, extending gains from the previous session, with mining and energy stocks leading the advance.
  • Australian shares also tracked a rally on Wall Street Friday as cooler-than-expected US inflation for May suggested the Federal Reserve’s aggressive tightening campaign is having its desired outcome.
  • Meanwhile, investors assessed a slew of domestic economic reports including the monthly inflation gauge and home loan data.
  • Gains among mining and energy firms were led by BHP Group (0.6%), Rio Tinto (0.7%). Source : Trading economics

Energy
Crude oil consolidating on the first day of trading for July after losing nearly $10/bl in H1.

• US WTI crude futures steadied above $70/bl on Monday to start the second half of 2023, as investors continued to assess various demand and supply factors.
  • Last week, the US oil benchmark closed out the first half of the year with losses.
    • Traders citing a lacklustre economic recovery in China, US recession fears and robust exports from Russia and Iran weighed on oil prices.
    • Aggressive monetary tightening and hawkish messaging from major central banks also dampened market sentiment.
  • Meanwhile, oil prices could find support in the third quarter as Saudi Arabia, OPEC’s de facto leader, is expected to extend a unilateral 1 million barrels per day output cut by another month in August.
  • The US Department of Energy also plans to solicit more oil purchases this week to replenish the Strategic Petroleum Reserve.
  • The DOE having previously announced it would buy 12 million barrels to refill the reserves. Source Gulf News

Metals
Metals finding support after solid first half of 2023.

• Gold steadied around $1,920/oz Monday as investors continued to assess the path for US Federal Reserve monetary policy.
  • The metal gained 0.6% on Friday after data showed US inflation slowed and consumer spending decelerated sharply in May.
  • Still, Fed Chair Jerome Powell indicated last week that further rate increases are likely ahead as it will take time to bring inflation back down to the 2% target.
    • Markets are priced for an 84% chance that the central bank will hike rates by 25 basis points in its July meeting.
    • Investors now look ahead to US manufacturing activity data on Monday to guide the economic and monetary policy outlook, as well as the key monthly jobs report on Friday. Source : Kitco

Currencies
The Dollar retreating after weaker than expected US PCE data.

• The US dollar held just below 103 on Monday after losing 0.4% in the previous session.
• The buck weighed down by data showing US inflation slowed in May, suggesting the Federal Reserve’s aggressive tightening campaign is having its desired outcome.
• Still, Fed Chair Jerome Powell indicated last week that further rate increases are likely ahead as it will take time to bring inflation back down to the 2% target.
• Markets are priced for an 84% chance that the central bank will hike rates by 25 basis points in its July meeting.
• This week we await FOMC minutes  and US jobs report on Friday. Source : Forexnews