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Morning NOTE

4 October 2022


The ZAR gained 1.65% on the back of improved global risk sentiment after the UK government scrapped their controversial tax plans.


  • The Rand benefitted from improved risk sentiment after the British government scrapped their tax cut plans.
    • Markets had revolted against the plans with Bond yields spiking higher, stock markets falling and the British Pound falling to record lows against the Dollar.
      • The turmoil in the markets, that placed UK  pension funds at risk, forced the Bank of England, to exact more QE in a time of high inflation.
      • Against this back drop and enormous market pressure, the British government , reluctantly, scrapped the tax cut plans.
  • All of this resulted in a Risk on scenario as Risk assets rallied strongly on the first day of trading in October.
  • The ZAR gaining as stock markets recovered with the SP500 trading above 3700.
    • The local unit reaching 17.7200 in early European trading.
  • The US Dollar also lower at 111.50. The Buck falling on the back lower Treasury yields after weaker than expected US PMI data.
    • Data indicating that higher interest rates might be having an effect on the economy.
      • Earlier, New York Fed Bank President John Williams said, that while there are signs of inflation cooling, underlying price pressures remain elevated.
    • Thus reinforcing the case for further monetary tightening.
    • The US10YT at 3.62%
  • This morning, adding to the Risk on wave, we had the RBA (Reserve Bank of Australia), raising rates by 25 bps.
    • It was less than the market expectation of 50 bps.
    • The board said that inflation in Australia was too high, as was the case in most countries, and that a further increase in prices is expected over the months ahead.
    • The lower than expected increase however, signalling to markets that the RBA thinks that inflation might have peaked.
    • This would be risk supportive across the board.
  • Against this back drop, we expect another positive session for Risk, ahead of Friday’s NFP report and next week’s US CPI.

Significant Market Data

On Monday

  • 16h00 : US PMI 52.2 VS 52.8
    • Actual was 50.9
      •   *** The ISM Manufacturing PMI unexpectedly fell pointing to the slowest growth in factory activity since the contractions in 2020.




  • The ZAR  traded stronger on Monday on the back of improved global risk sentiment.
    • The unit gained 1.65% to take us to the bottom of the range we’ve been trading in i.e. 17.8000-18.2200.
    • With markets recovering from a blood bath in September we could expect more “Risk buyers” to enter this session.
    • A break of 17.8000 could target 17.6700 as “Dollar longs would be forced to liquidate”.
      • A spike towards 17.5000 also on the cards ( extreme view).
  • This morning after a dip below 17.7000 handle at the open,
    • we expect a bounce back into the range as market makers induce stops.
    • Thereafter,
    • In the short term, (ahead of Friday’s data),we expect a stronger ZAR, following the RBA this morning (25bps)  and yesterday’s weak US PMI’s

Expected Ranges

  • USDZAR :  Expect a range 17.6700-17.9200
    • Importers 17.7300-17.6700
    • Exporters 17.8600-17.9200
  • EURZAR :  Expect a range of 17.4100-17.6200
    • Importers 17.4900-17.4100
    • Exporters 17.5500-17.6200
  • GBPZAR :  Expect a range of 20.000-20.3700
    • Importers 20.1100-20.0000
    • Exporters  20.2400-20.3700


  • USDZAR 17.8100
  • EURZAR 17.5200
  • GBPZAR 20.1800


  • After the sale of SAA to the Takatso consortium, Unsuccessful bidder Toto Investments took the government to court claiming the deal was not fair, equitable or transparent.
    • Public Enterprises Minister Pravin Gordhan will have to provide all documents to the Western Cape High Court.
    • Toto investments however, failed in its bid to immediately halt the sale transaction from going ahead.
      • The Western Cape High Court gave the Department of Public Enterprises 20 days to submit documents it claimed were confidential to the Judge’s chambers. EWN
  • The department for Mineral Resources and Energy said that petrol prices will decline for a 3rd month in a row.
    • It what will be seen as more good news for motorists.
    • 95 octane will decrease by R1.02 while 93 octane will be 93 cents cheaper at midnight on Wednesday.
      • But diesel increases by 10 and 15 cents for the different grades. Source DMRE
  • Energy regulator Nersa has missed its own “tight deadline” to finalise a new method for determining the tariffs Eskom, municipalities, and all other electricity licensed suppliers may charge.
    • A meeting of the energy regulator on Thursday (29 September) noted that it will only be finalised early next year, due to delays in the appointment of technical specialists.
    • Eskom has once against applied for an outsized increase in electricity tariffs, citing the high cost of diesel as the reason. Moneyweb


  • In regular trading on Monday, the Dow rallied 2.66%, the S&P 500 surged 2.59% and the tech-heavy Nasdaq Composite jumped 2.27%.
    • The first trading day of October had all three benchmarks rebounding from their lowest levels in about 2 years.
  • This morning, US stock futures once again higher as weaker-than-expected manufacturing data allayed fears about the Federal Reserve’s aggressive rate hike path.
    • The September ISM PMI showed manufacturing activity grew at its slowest pace in 30 months as new orders headed into contractionary territory.
      • Analysts saying a sign that tightening monetary conditions may be taking a toll on demand.
  • Treasury yields fell on the news, with investors hoping that the Fed would slow the pace of its rate increases.
    • Markets now look ahead to the monthly US jobs report due on Friday, as well as earnings reports from a raft of companies this week. Reuters


  • US 10 YT Yield was lower at 3.62 % on Tuesday October 4, according to over-the-counter interbank yield quotes for this government bond maturity.
    • Weaker than expected PMI data, driving yields as growing concerns of an economic contraction caused by high rates and inflation. Source : US treasury
  • Across the pond, the UK 10Y Bond Yield was 3.95 %, also lower.
    • Investors digested news that Finance Minister Kwasi Kwarteng reversed the planned scrapping of the top income tax rate after a public backlash and market turmoil.


  • The Dow added 765 to 29,490
  • The SP500 gained 92 to 3,678
  • The Nasdaq  added 239 to 10,815


  • Asian markets skyrocketing higher on the back of a positive session in New York.

    • In Japan, the Nikkei 225 gained nearly 2% to above 26,600 on Tuesday, recovering further from over three-month lows
      • The index lifted by a relief rally on Wall Street on the back of falling Treasury yields as soft US manufacturing data.
        • The weaker PMI’s raised speculations that the US Federal Reserve may slow the pace of its rate hikes.
          • Investors also assessed data showing core consumer prices in Tokyo, rose at the fastest pace since 2014 amid broadening cost pressures.
          • However, the BOJ is still expected to maintain ultra-easy policies to support a fragile economic recovery.
    • In Australia, ASX 200 Index surged 3.5% toward 6,680, rebounding from an over 3-month closing low.
      • Traders citied a sharp decline in Treasury yields, that  triggered a relief rally in stocks after weaker-than-expected US manufacturing data.
        • The data raised hopes that the US Federal Reserve may ease from tightening aggressively.
        • The market also spiking after the RBA surprised the market with a lower than expected 25bps hike vs 50 bps.
        • Heavyweight iron ore miners, led the advance, with strong gains from BHP Group (2.4%), Newcrest Mining (5.1%) 
  • The US dollar declined on Monday following weaker PMI data and a drop in yields.
    • The dollar traded 111.6 after facing pressure in recent sessions.
      • The drop in yields indicating that tightening monetary conditions may be taking a toll on demand.
    • Thus far the Buck had been supported by a hawkish FED that is expected to keep raising interest rates until it sees compelling evidence that inflation is trending down.
      • New York Fed Bank President John Williams said on Monday that while there are signs of cooling inflation,
        • underlying price pressures remain elevated, reinforcing the case for further monetary tightening.
    • This gave rise to speculations that the Fed may slow the pace of future rate increases.  FX news
  • Crude Oil higher in anticipation of more production cuts from OPEC+, who meets in Vienna, Austria.
    • WTI crude traded near $84/bl after jumping more than 5% in the previous session.
      • Prices remaining supported ahead of an OPEC+ meeting where it is expected to announce a large supply cut to counter recent weakness in energy markets.
      • The group of major producers is set to meet in Vienna on Wednesday and is likely to reduce output by more than 1 million barrels per day.
      • September witnessed a 4th straight month of price declines as demand concerns continue to weigh on prices.  Gulf Energy News
  • Gold spiked higher, to breach the $1700/oz level following a drop in US treasury yields and a drop in the Dollar.
    • The metal surged more than 2% on Monday to the highest levels in nearly three weeks as Treasury yields fell sharply.
    • Also the US dollar was knocked back by weaker-than-expected US manufacturing data which raised hopes that the US central bank may slow the pace of its rate increases.
      • Earlier, New York Fed Bank President John Williams said on Monday that US monetary tightening still has “significant ways to go”.
      • He said  interest rates have yet to reach restrictive levels for economic growth.  Kitco metals report

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