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Morning NOTE

GOOD MORNING

The ZAR continued to trade near its weaker levels ahead of Friday’s US jobs report.

OPENING RATES

• USDZAR : 19.7500
• EURZAR : 21.1100
• GBPZAR : 24.4600

SOUTH AFRICA

• Standard Bank on funding Eskom announced ‘We can’t just pull lending lines’ –
  • The bank said it’s supporting the power utility with R10bn to expand its transmission network.
  • South Africa’s largest bank by assets Standard Bank has said it will not divest from state-owned power utility Eskom, which generates most of its electricity from coal-fired power plants.
  • “No, we’re not going to disinvest, because disinvestment suggests that we will effectively pull all our lines,”
    • Said – Kenny Fihla, Standard Bank’s chief executive for its corporate and investment banking unit said on Tuesday. moneyweb
       
• Transnet to create unit in October to enable private rail access
  • The lines move cars, metals and coal to ports and import fuel and automotive parts.
  • Transnet SOC Ltd. is pushing ahead with plans to boost private participation in South Africa’s ports and freight-rail networks as the state-owned logistics company’s operational performance deteriorates.
  • By the end of October it plans to create an infrastructure manager to allow private companies to run trains on key freight tracks.
  • Those rail lines move cars, metals and coal to ports and import fuel and automotive parts. Moneyweb
     
• The National Energy Regulator of South Africa (Nersa) has announced its approval for Eskom’s plan to purchase 344.5MW new generation capacity from solar photovoltaic (PV) and battery energy storage.
  • The announcement comes after a meeting on May 25.
  • Nersa gave the green light to Eskom to procure 75MW of new generation capacity from Solar PV at Lethabo Power Station in the Free State, and 19.5 MW of Solar PV at Sere Wind Farm in the Western Cape.
  • It could also go ahead with the procurement of 100MW of Solar PV as well as 150MW battery energy storage system at the Komati Power Station in Mpumalanga.
  • Nersa said the electricity procured should target grid connection as soon as reasonably possible. IOL

GLOBAL MARKETS

Stocks

• US stock futures were mixed on Wednesday as traders awaited progress on the debt ceiling debate in Washington, with the House set to vote on the deal later in the global day.
  • Dow futures fell 0.1%, while S&P 500 and Nasdaq 100 futures rose 0.1% and 0.2%, respectively.
     
• In regular trading on Tuesday, the Dow dropped 0.15%, the S&P 500 was flat and the Nasdaq Composite gained 0.32%.
• Those moves came as lingering uncertainties around the debt ceiling deal weighed on sentiment,
  • even though President Biden and House Speaker McCarthy agreed to temporarily suspend the debt ceiling and cap some federal spending over the weekend.
• Meanwhile, technology stocks continued to outperform the market on the back of market enthusiasm around artificial intelligence.
  • Gains among AI-related stocks were led by Nvidia (3%), C3.AI (33.4%) and Palantir Technologies (7.8%). Reuters

Bonds

• The yield on the US 10-year Treasury note fell to 3.73% to kick off a shortened-holiday week, after touching 3.85% the week before, amid hopes that Congress will pass the debt deal.
  • A deal was agreed upon on Saturday by President Biden and House Speaker McCarthy, and the House vote is expected to take place on Wednesday.
    • However, several Republicans have stated that they will not vote in favour of it.
      • Yields on lower-maturity bonds which carry a higher risk of default, extended the decline from recent highs, with the 4-week bill falling to below 5.5%.
      • Meanwhile, traders also await key economic data due this week including the payrolls report, JOLTS and the ISM Manufacturing PMI.

Yesterday

• DOW -50 to 33,042
• SP500 flat to 4,205
• NASDAQ  +41 to 13,017

  image: Trading economics

OVERNIGHT HEADLINES

The US dollar

• The dollar index held above 104 on Wednesday and was on track to gain nearly 3% in May.
  • The Dollar supported  underpinned by strong US economic data which bolstered expectations that the Federal Reserve could tighten policy again in June and hold interest rates higher for longer.
  • 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.  FX news

Asian markets lower across the board ahead of this week’s US Jobs report.
Markets relieved about the US debt ceiling report.

• In Japan, the Nikkei 225 Index fell 1.4% to close at 30,888, with Japanese shares retreating further from over three-decade highs amid a broad market decline.
  • Investors also digested data showing industrial production in Japan unexpectedly declined in April, while retail sales growth missed forecasts.
  • Energy and mining stocks led the retreat on weaker commodity prices.
     
• In Australia, the S&P/ASX 200 Index fell 1.64% to 7,091 on Wednesday, closing at its lowest level in two months.
  • Energy and mining stocks leading the decline amid weaker commodity prices.
  • Rising interest rates continue to hamper the commodities complex resulting in heavy losses for metals and energy as oil prices tumbled overnight.
  • Iron ore and lithium miners also declined, including BHP Group (-3.4%), Fortescue Metals (-3%), Rio Tinto (-2.1%).
  • The benchmark index dropped 2.98% in May, its third monthly fall this year.

Crude oil

• US WTI crude futures declined below $69/bl after losing more than 4% in the previous session.
  • Investors awaited progress on the debt ceiling debate in Washington as some US lawmakers said they would oppose a deal to raise the debt limit.
  • Investors also digested weaker-than-expected Chinese manufacturing and services activity data for May, fuelling fears of slowing economic growth in the world’s top crude importer.
  • In contrast, Russian Deputy Prime Minister Alexander Novak stated that he anticipated no new measures from OPEC+ as the group just implemented production cuts this month. Gulf Energy News

Gold

• Gold steadied around $1,960/oz on Wednesday but was still set to end the month lower, weighed down by hawkish US Federal Reserve bets and news that a tentative US debt ceiling deal was reached over the weekend.
  • Strong US economic data bolstered expectations that the Federal Reserve could tighten policy again in June and hold interest rates higher for longer.
  • 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 raising the US debt ceiling over the weekend, hurting safe-haven demand for bullion.
  • Elsewhere, weaker-than-expected manufacturing and services activity data in China fuelled fears of slowing economic growth in the world’s top gold consumer. Kitco metals