Morning NOTE

GOOD MORNING

The Rand lost nearly 15 cents in thin Asian trading on the back of the Euro falling sharply through parity as Europe’s gas crises worsens.

• USDZAR 17.3900
• EURZAR 17.2000
• GBPZAR 19.9100

SOUTH AFRICA   

• Huge petrol price drop expected.
  • After months of unbearable price hikes, the Central Energy Fund’s latest data predicts that 95-octane petrol is expected to decrease by around R2.35c.
  • The Road Freight Association is one of several industries that have welcomed this week’s expected fuel price drop.
  • For Gauteng residents, this means you could pay at least R23 per litre at the pumps, compared to the current R25.42c a litre. EWN news
• The President and his farm Phala-Phala once again the headlines with reports of the sale of 26 animals fetching R6.8 million at an auction.  
  • Recap: CR was accused by SA’s former spy chief Arthur Fraser of covering up the theft in 2020 of foreign exchange from the sale of animals at the Phala Phala Wildlife farm.
  • The money was said to be hidden inside furniture at the ranch, about two hours north of the capital, Pretoria. 
  • Ramaphosa has denied wrongdoing and said he’s cooperating with investigators. NEWS24
• ESKOM and now Koeberg
  • Nuclear power station Koeberg’s problematic Unit 2 tripped on Saturday morning, less than a month after it was plagued by mechanical issues and a delayed return to service.
  • The SOE confirming the unit tripped from full power during a routine testing of the control rod.
• Global chip shortages hit SA motor vehicle manufacturing .
  • The global shortage of semiconductor microchips, is likely to continue well into 2023, analysts say.
  • The shortage have seen SA motor companies struggle to meet market demand,
  • This despite frantic efforts by chip companies and governments to ease the crisis.
  • Researchers saying, world vehicle production has been cut by at least 2-million units so far this year. Businessday Live

GLOBAL MARKETS

Stocks:

• US Markets are closed on Monday for the Labour Day holiday.
  • On Friday, the Dow Jones fell over 300 points while the S&P 500 and the Nasdaq dropped 1.1% and 1.3%, respectively.
    • Traders citing, the highly-anticipated jobs report failing to allay investors’ fears about Fed’s aggressive interest rate hikes.
      • The NFP report showed that the US economy added jobs in line with expectations in August.
      • Traders are still pricing in a 75bps rate hike in the fed funds rate this month.
      • All sectors closed in the red, except energy shares, boosted by higher prices of crude oil.
• On the week, the Dow and S&P lost 3% and 3.3%, respectively, while the Nasdaq shed 4.2%, recording their third negative week in a row.

Bonds:

• Yields globally continues to spike on the back of sticky and 4 decade high inflation.

  • In the US the 10YT traded at 3.20% at the time writing.
  • This week we have the RBA likely to hike rates again.
• In addition, in the UK, where the cost of living are rapidly spiraling out of control, Britain’s 10-year Gilt yield surged to 2.96%.
  • The highest level since 2014 on expectations the BOE has no option other than continuing its aggressive tightening.
  • This implies, another back-to-back 50 bps hike in borrowing costs to control inflation even though the British economy is heading to a recession.
  • The annual inflation rate in the UK topped analyst estimates and hit a double-digit for the first time in 40 years in July.
• Important : The new prime minister of the U.K. will be announced Monday.
  • Foreign Secretary Liz Truss is the front-runner, while former Finance Minister Rishi Sunak is expected to come second.

ON FRIDAY

• The Dow declined 337 to 31,318
• The SP500 fell 42 to 3,924
• The Nasdaq  lower by 154 to 11,630

Futures Trading:

• image : Trading Economics

OVERNIGHT HEADLINES

• Asian markets trading mixed as traders digest Friday’s Jobs report as well as the Gazprom ramifications for financial markets.
  • In Japan, the Nikkei 225 fell 0.11% to 27,620 and in turn closing at its lowest levels in a month.
    • Traders saying the index tracking continued weakness on Wall Street. This after moderating US jobs growth failed to allay fears about further monetary tightening.
    • Investors also assessed data showing Japan’s service sector contracted in August for the first time since March as fresh Covid-19 outbreaks weighed on demand.
  • In Australia, the ASX 200 rose 0.34% to close at 6,852, after recovering slightly and helped by gains in energy and mining stocks.
    • This after a rebound in commodity prices. Energy stocks led the gains as oil prices climbed ahead of an OPEC+ meeting.
    • Investors are also preparing for the RBA ‘s (Reserve Bank of Australia) policy decision on Tuesday.
    • The RBA  is expected to deliver its fourth straight half percentage point rate hike to combat two-decade high inflation. Bloomberg
       
• Brent prices spike above $94/bl after Russia’s Gazprom stopped flows to mainland Europe, citing maintenance issues.
  • The impact of the latest fallout from Europe’s worsening energy crisis supporting prices.
  • OPEC+ cuts also supporting prices as it tries to combat potential “new” supply from Iran.
  • However, demand concerns stopping a full out rally, due to anti-virus lockdowns in top importer China.
  • Monetary tightening remains a worry as central bankers warn they are ok for a recession if it can bring prices under control.
  • NB:  Brent prices declined nearly 8% last week and are down about 25% since mid-June amid fears that tightening monetary conditions.
     
• Gold prices finding some support and even buying after Russian energy giant Gazprom PJSC halted its key gas pipeline to Germany.
  • This after, on Friday, G7 leaders agreed to impose a price cap on Russian oil. 
  • Bullion trading around $1,710/oz at the time of writing.
  • Also, traders reassessed the outlook for US interest rates following an “ in line “ jobs report.
    • NFP rising +315k but unemployment higher at 3.7%, supporting Gold as yields drifted lower.
  • Safe haven buying helping the yellow metal due to a deepening energy crisis in Europe that heightened recessionary risks.
     
• US Dollar shrugged off weaker / inline jobs report and fading yields after Russia Gazprom’s decision to halt flows of crucially needed Natural Gas to Europe.
  • The dollar broke above 110 on Monday for the first time since June 2002.
  • Traders citing a flight to safety, after Russia indefinitely shut a key gas pipeline to Europe on Friday.
  • The Kremlin citing an oil leak in a turbine, notably only a few hours after G7 leaders agreed to impose a price cap on Russian oil.
  • However, moderating US jobs growth failed to stop fears about the FOMC ’s aggressive plan to stamp out inflation.
  • Markets continues to price for another 75 basis point rate increase this month.
     

• Natural Gas crises

  • European natural gas futures jumped almost 30% to approach €280 per megawatt hour on Monday.
  • This after Russia’s Gazprom reversed its plan to resume flows through the Nord Stream pipeline and shut it indefinitely, citing maintenance requirements.
  • The Nord Stream pipeline was already running at just 20% of capacity before flows were halted last week for a three-day maintenance period.
  • Gazprom decision is set to deepen an ongoing energy crisis in Europe, with countries trying to find alternatives to Russian gas supply.
  • This included LNG alternatives i.e. liquefied natural gas from the US.
  • European Union ministers will have an emergency energy meeting this week to discuss the energy crisis and define special measures to fight rising costs. Reuters