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Morning NOTE

GOOD MORNING

The ZAR weakened after the Fed hiked 75 bps and Powell confirmed the interest rates have some way to go to bring inflation under control.

OPENING RATES

• USDZAR 18.2800
• EURZAR 17.9300
• GBPZAR 20.8200

SOUTH AFRICA

RAMAPHOSA

• President Cyril Ramaphosa will return to Parliament on Thursday to answer questions from MPs on Eskom and calls for the scrapping of BEE and affirmative action.
  • Ramaphosa returns to the legislature after struggling to address the chamber in the previous sitting due to disruptions.
  • MPs had wanted answers on the Phala Phala scandal, forcing one previous session to be abandoned in September.
  • The president’s two previous question-and-answer sessions in September were overshadowed by heated exchanges and disruptions over the Phala Phala farm scandal. Source EWN

 
NUCLEAR

• Eskom management has reiterated that extending the lifespan of Koeberg nuclear power station is the best investment the country can make in electricity generation capacity.
  • The Koeberg nuclear power station’s licence expires in 2024, but the utility will now extend its lifespan by replacing key areas of the plant such as the steam generators.
  • Eskom CEO Andre de Ruyter says they are in close consultation with the National Nuclear Regulator, which oversees safety aspects at the plant. EWN

 
SUGAR CRISES

• The South African Cane Growers Association (SACGA) said on Wednesday nearly 15,000 jobs hang in the balance as company Tongaat Hullett Limited missed its deadline to pay them.
  • The company admitted to financial distress last week and said that it would be beginning a voluntary business rescue process.
  • The association said the company was supposed to pay R400 million to farmers for a sugarcane delivery that was made in September.
  • A crisis is looming in the sugar industry as the company that’s over a century old, deals with financial challenges.
  • Tongaat Hullet Limited currently has R5 billion worth of debt, which includes millions owed to farmers. News247

GLOBAL MARKETS

Stocks:

• In regular trading on Wednesday, the major markets traded lower with the Dow losing 1.55%, while the S&P 500 and Nasdaq Composite declined 2.5% and 3.36%, respectively.
  • Those losses came as the Fed raised interest rates by 75 basis points in a widely expected move.
  • Also as the Fed Chair Jerome Powell signalled that rates could peak higher even as he hinted at a slower pace of increases.
     
• This morning US stock futures lower after the major averages faced heavy selling pressure during Wednesday’s session.
  • Futures contracts tied to the three major indexes were all down at least 0.2%.

Bonds:

• US 10 Year Note Bond Yield was 4.12 percent on Thursday November 3. Yields all trading higher after the FED indicated they are committed to bringing down inflation.
  • Earlier in the day private payrolls i.e. ADP unexpectedly created 239K jobs in October of 2022, the most in three months, and compared to market forecasts of 195K.
  • A strong labour market continues to support FED action .
     
• This was also ahead of a “more hawkish” FED.

THE FED

• The Federal Reserve raised  the federal funds rate by 75bps to 3.75%-4% during its November 2022 meeting.
  • It was the 6th consecutive rate hike and the 4th straight 75 bps increase, pushing borrowing costs to a new high since 2008.
    • The decision came in line with market forecasts.
    • Policymakers also said that ongoing increases in the target range will be appropriate and that they will take into account the cumulative tightening of monetary policy when deciding on the size of further increases.
    • The message could signal a smaller rate hike in December but during the press conference Chair Powell also noted the ultimate level of interest rates will be higher than previously expected.
       
• The Fed aims to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2%, which remains elevated around 40-year highs. source: Federal Reserve

YESTERDAY

• The Dow fell 505 to 32,147
• The Sp500 declined 96 to 3,759 
• The Nasdaq  fell 366 to 10,524

•  Image: Trading Economics

OVERNIGHT HEADLINES
 

• Asian markets lower after the FED delivered another 75 bps rate hike. Markets tracked lower after Jay Powell stated the targeted rate had been raised and the Fed likely to hike more to combat inflation that remains at 40 yr highs.
  • In Japan, the Nikkei 225 fell shed 0.06% to close at 27,663, after the Fed is delivered  its fourth straight 75 basis point rate hike on Wednesday,.
    • Investors also continued to navigate market volatility driven by mixed domestic corporate earnings results.
  • In Australia the ASX 200 Index fell 1.84% to close at 6,858, tracking a sharp selloff on Wall Street as the US Federal Reserve delivered its fourth straight 75 basis point rate hike and said that the tightening campaign was not over.
    • Nearly all sectors declined in Australia, with heavy losses from technology, financial and consumer stocks.
    • Heavyweight miners also gave up significant ground despite firmer iron ore prices, such as BHP Group (-3.2%), Fortescue Metals (-2.9%) and Rio Tinto (-2.2%).
       
• The US dollar consolidated near 112 on Thursday after a sharp turnaround rally in the previous session.
  • The Federal Reserve delivered another 75 bps interest rate hike and signalled that the tightening campaign was not over.
    • The Fed raised interest rates by a widely expected margin of 75 basis points on Wednesday.
    • The Fed Chair Jerome Powell said that rates have yet to be “sufficiently restrictive” and that it is “premature to discuss pausing”.
    • In September, Fed officials projected a median terminal rate of roughly 4.6% but many analysts now see it rising to 5% or even higher.
    • Investors now look ahead to a key US jobs report on Friday to gauge how the jobs market and overall economy are responding to previous rate hikes.

• Crude oil
  • Brent crude futures fell below $96/bl, easing from recent highs, as the US Federal Reserve signalled that interest rates could go higher than previously anticipated, keeping the pressure on global growth and demand.
  • The Fed raised its policy rate by 75 basis points in a widely expected move.
  • Demand concerns after higher interest rates as central banks struggle to bring down inflation has been weighing on the demand outlook, as it increases the risk of a global recession.
  • Still, investors remained cautious about a tightening supply outlook as reflected by a surprise decline in US crude inventories.
  • OPEC+ is also expected to keep markets tight with sizable output cuts, while the European Union ban on Russian oil is set to take effect next month. Gulf Energy
     
• Gold prices traded below $1,640/oz.   
  • The Federal Reserve’s messaging turned out to be more hawkish than markets anticipated.
  • After the Fed delivered its fourth straight 75 basis point rate hike, Fed Chair Jerome Powell said that the central bank has “ways to go with interest rates before we get to the level that’s sufficiently restrictive” and that it is “premature to discuss pausing.”
  • However, Powell added that a slower pace of rate increases could soon be appropriate. The Bank of England is also expected to raise interest rates by 75 basis points on Thursday.
    • Then temper its hawkish tone due to rising risk of a recession.
    • Gold prices hovered close to low levels not seen since April 2020, as a general rise in interest rates increases the opportunity cost of holding non-yielding bullion. Kitco metals