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Morning NOTE

GOOD MORNING

The ZAR consolidated near weaker levels of 19.6500 in thin trading due to the US memorial day holiday.

OPENING RATES

• USDZAR : 19.7500
• EURZAR : 21.1100
• GBPZAR : 24.3500

SOUTH AFRICA

ESKOM

• Eskom’s new gas power station gets green light
  • Following court approval to rescind its own decision against the project,
  • the National Energy Regulator of South Africa (Nersa) now concurs with a determination for Eskom to build a new 3 000MW gas power station in Richards Bay.
  • A treasury ban on additional debt however complicates matters and environmental groups are also determined to block the project. MONEYWEB

PROPERTY RENTALS

• Northern Cape threatens to take over as most expensive residential rental market
• The latest price jolt makes the Northern Cape the fastest-growing province in terms of rental prices, according to PayProp.
• The Western Cape still takes first prize as the most expensive province in which to rent a home,
  • with average monthly rentals during the period sitting at R9 872, but its rental growth was much slower during the quarter.
• In fact, figures show that the Western Cape’s 5% growth rate is much closer to the national average of 4.2%;
  • it is growing at the same pace as the Eastern Cape, KwaZulu-Natal and Mpumalanga. MONEYWEB

LADY R

• The ANCs welcomed the appointment of a panel tasked with investigating circumstances around a Russian vessel that docked in Simon’s Town in the Western Cape.
  • President Cyril Ramaphosa appointed a three-member panel following allegations that arms were loaded into the vessel in December last year.
  • The United States (US) ambassador to South Africa Reuben Brigety alleged that Pretoria had sold the arms to Russia, which Moscow used in its invasion of Ukraine.
• HOWEVER
  • Opposition parties in Parliament have called the inquiry into the Lady R vessel an “overreaction” and “damage control”.
    • They also questioned the six-week timeframe to conduct the inquiry appointed by President Cyril Ramaphosa.
    • DA member of Parliament Kobus Marais said: “It is worrying thought that the investigation was only announced now and will last six weeks.
  • “It comes across as damage control and as a result of international diplomatic and business pressure.
    • We believe the investigation must reveal why government did not respond to the advance warning by the United States.” EWN

GLOBAL MARKETS

Stocks

• US stock futures rose on Tuesday after the Biden administration and Republican lawmakers reached a tentative deal on raising the US debt ceiling.
  • The news removing a source of uncertainty in the markets. Nasdaq 100 futures jumped 0.4%, S&P 500 futures gained 0.3% and Dow futures added 0.2%.
    • President Biden and House Speaker Kevin McCarthy reached a tentative deal in a phone call late on Saturday and showed confidence it would pass in Congress.
    • The bill will suspend the debt ceiling until January 1,2025, and federal spending will be capped for the next two years.
  • US stock and bond markets were closed Monday for the Memorial Day holiday.
    • Investors now look ahead to a fresh batch of economic data this week including the May jobs report and the ISM Manufacturing PMI

Bonds

• The yield on the US 10-year Treasury moved above 3.83%, reaching its highest level since March 9.
  • Yields supported by stronger-than-expected data, which raised expectations of additional tightening by the Federal Reserve.
    • The core PCE inflation, the Fed’s preferred inflation gauge, rose to 4.7% in April, surpassing expectations of 4.6%.
    • Also, personal spending rose more than expected, and durable goods orders unexpectedly increased.
  • The Fed is now expected to hike by 25 bps at its June meeting.
    • Euro-Dollar June interest rate contracts, pricing in a 100% chance of a 25bps hike by the FOMC in June.

Yesterday
** US HOLIDAY
  image: Trading economics

OVERNIGHT HEADLINES

The US dollar

• The US dollar remained above 104 on Tuesday, hovering near its highest levels in ten weeks.
  • The Buck supported by strong US economic data that bolstered expectations of further policy tightening.
  • Last week data  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 debt limit and ensure the US does not default on its obligations.

Asian markets

Regional markets opening lower as investors book profits ahead of a bumper data weekly that includes the US NFP report.

• In Japan, the Nikkei 225 fell 0.3% to below 31,200, giving back gains from the previous session as investors booked some profits.
• This  following a strong rally that brought the benchmark indexes to over three-decade highs this month.
• Investors also digested data showing Japan’s unemployment rate dropped to 2.6% in April from 2.8% in March, exceeding expectations for a slight fall to 2.7%.
• Notable losses were seen from index heavyweights such as SoftBank Group (-3.5%), Tokyo Electron (-0.4%), Toyota Motor (-0.5%), Mitsui & Co (-0.8%) and Sony Group (-0.5%).

In China, the Shanghai Composite fell 0.2% to around 3,extending recent weakness.

• Investors cautiously awaited the latest purchasing managers’ index readings in China to gauge the health of the world’s second-largest economy.
• Markets have been weighing the prospect of interest rate cuts from the People’s Bank of China this year as a series of economic releases pointed to a challenging recovery path for the country.

Crude oil

• US WTI crude futures rose above $73 per barrel on Tuesday.
  • Prices  extending gains from the previous session after the US government reached a tentative debt ceiling deal.
  • Investors relieved  about the avoidance of a possible default in the world’s largest economy and oil consumer.
  • Investors are also bracing for an OPEC+ meeting later this week .
    • Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman warned short sellers to “watch out” for potential consequences last week.
  • Meanwhile, Russian Deputy Prime Minister Alexander Novak stated that he anticipated no new measures from OPEC+.
    • This  as the group just implemented production cuts this month.
  • Still, investors remain cautious as a sluggish economic recovery in China clouded the demand outlook.
    • AND …The prospect of higher interest rates, particularly in the US, also continued to weigh on markets

Gold

• Gold remained under pressure  below $1,950/oz on Tuesday, remaining close to its lowest level in two months,.
  • The yellow metal  weighed down by hawkish US Federal Reserve bets and news that a tentative US debt ceiling deal was reached over the weekend.
  • Stronger than-expected US economic data bolstered expectations of further interest rate hikes from the Fed.
  • 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.
  • Gold is highly sensitive to the rates outlook as higher interest rates raise the opportunity cost of holding non-yielding bullion, denting its appeal. Kitco metals

Turkish Lira

• The Turkish lira weakened to above TL20 per dollar and new record lows as Recep Tayyip Erdogan won the presidency in a runoff election held on May 28.
  • Erdogan extending his rule for a third decade. He secured 52.14% of the votes, dashing hopes for the opposition led by Kemal Kilicdaroglu.
  • The opposition leader had pledged change, economic improvement and a more democratic government.
  • Erdogan’s reign has been marred by economic policies that helped create a cost of living crisis and,
    • public anger at a slow government response following a major earthquake in February that killed more than 50,000 people.
  • Investors will now monitor his future policy plans as the country faces a high inflation rate of 43.7% and a currency that has lost more than 6% so far this year.
    • Markets will also watch for Turkey’s foreign policy as the NATO-member has taken up a key role in Russia-Ukraine mediation.