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Morning NOTE

GOOD MORNING

The ZAR bucked the global “yield” trend and strengthened to 17.6800 on optimism the Fed will reduce its hawkish stance.

OPENING RATES

• USDZAR 17.7500
• EURZAR 17.7700
• GBPZAR 20.3900

SOUTH AFRICA

• ESKOM said stage 2 will be implemented as soon as possible.
• Eskom says stage two power cuts will start from 9AM on Tuesday morning because of failing generating units at coal power plants. EWN

Also,

• A report by Eskom has warned about the impact of a delay on the multi-year project to extend Koeberg’s life by a further 20 years.
• Under the Grid Code, Eskom is required to file a medium-term system adequacy outlook annually.
• The objective of these reports, says the utility, is “to assess over a five-year period the electricity supply shortfall risks that may arise based on foreseeable trends in demand and generation capacity in South Africa”. MONEYWEB 

SANRAL

• Concerns have been expressed about foreign companies – specifically Chinese firms – this week being awarded the lion’s share of four contracts valued at R17.4 billion that the SA National Roads Agency (Sanral) cancelled earlier this year.
• the SA Forum of Civil Engineering Contractors (Safcec) has also expressed concern that the principles of fairness and competitiveness were not met in awarding these contracts.
• However, construction industry associations and stakeholders have stressed the need for South Africa construction companies to be competitive against international rivals. MONEYWEB

GLOBAL MARKETS

Stocks:

• US stock futures held steady on Tuesday after the major averages notched a second winning day.
  • Major news are investors cautiously awaiting the results of the US midterm elections.
  • Futures contracts tied to the three major indexes all traded near breakeven.
• In regular trading on Monday, the Dow jumped 1.31%, the S&P 500 gained 0.96% and the Nasdaq Composite added 0.85%.
  • Investors are now mulling whether Republicans could take back the US Congress and change the direction of future policy and spending.
  • Markets are also looking ahead to Thursday’s inflation report that could signal how aggressively the Federal Reserve would raise interest rates in December. Bloomberg

Bonds:

• The US 10-year Treasury yield, the benchmark for borrowing costs worldwide, hit 4.2%, approaching a 15-year peak of 4.3% hit in late October, as worries about inflation and aggressive Fed tightening spooked investors.
  • The FED delivered an expected 75 bps hike last week while flagging a longer monetary tightening path as the central bank seeks to bring down inflation to its 2% target.
  • While recent data showed that the job market remains extremely tight, now, all eyes turn to October inflation data, due on Thursday, for more clues on future interest rate hikes
• The UK
  • The yields on the 10-year Gilt traded as high as 3.63% as investors await British Finance Minister Jeremy Hunt’s autumn statement due next week.
    • The Chancellor is expected to announce up to £60 billion of tax rises and spending cuts, including at least £35 billion pounds in cuts.
    • Elsewhere, the continued monetary policy tightening by the Bank of England, alongside risks of economic recession, has also provided some support. 
  • New PM Rishi Sunak forced to reverse most of Lizz Truss’  mini-budget measures and
    • Markets are now more stable, with government borrowing costs broadly back to where they were before the turmoil. Reuters

ON FRIDAY

• The Dow added 423 to 32,827
• The SP500 gained 36 to 3,806
• The Nasdaq  gained 89 to 10,475

•  Image: Trading Economics
   

OVERNIGHT HEADLINES
 

• Asian markets rallied on the back of a strong close on Wall Street as traders pair bets that the Fed will continue to be so aggressive.
  • In Japan, the Nikkei 225 jumped 1.25% to 27,872, closing at their highest levels in almost eight weeks, with technology stocks leading the charge.
    • Japanese shares also tracked a strong finish on Wall Street overnight as investors awaited the results of the US midterm elections and the October inflation reading.
    • Moreover, investors remained optimistic about the corporate outlook as the third quarter earnings season has largely been positive.
  • In China, the Shanghai fell 0.4% to around 3,065 consolidating recent gains as investors continued to watch for policy signals from China on whether it is considering dialling back its zero-Covid policy.
    • Speculation about a potential reopening that started last week spurred a rally in Chinese stocks.
      • BUT health officials dispelled those rumours over the weekend and reaffirmed their commitment to current Covid controls.
      • Meanwhile, investors are also looking ahead to the results of the US midterm elections that could affect Sino-US relationship.
         
• The US Dollar declined below 111 to trade at 110.45 in early Tuesday trading.
  • The Buck lower for two straight sessions, as investors looked ahead to the US midterm elections that could sway future economic policy.
  • Markets also await key US inflation data later this week that could influence the size of the Federal Reserve’s rate hike in December.
  • The dollar held recent declines against other major currencies including the Euro, Sterling and, Aussie.
  • Focus however remains on Thursday’s key CPI report as well as rising yields with the 10Y at 4.22%

• Crude oil near $98/bl as traders weighed supply concerns against a weakening demand outlook.
  • Brent, the international oil benchmark climbed in recent weeks on a tightening supply outlook.
  • This after OPEC+ slashed output by 2 million barrels a day in November,  
    • also while the European Union ban on Russian oil is set to take effect in December and will be followed by a halt on oil product imports in February.
    • Meanwhile, oil prices retreated from a recent high on Monday as China reaffirmed its commitment to the zero-Covid policy that has dampened demand in the world’s top crude importer.
    • Markets also continued to grapple with tightening financial conditions and mounting risks of a global recession
       
• Gold gained to $1,670/oz on Tuesday, as investors avoided making big bets ahead of US inflation data that could influence the size of the US Federal Reserve’s rate hike in December.
  • Markets are currently priced for a more moderate 50 bps increase next month, but a hotter-than-anticipated US CPI report on Thursday could fuel bets for another supersized 75 basis point rate hike.
  • While gold is widely considered as a hedge against inflation and economic uncertainties, higher interest rates raise the opportunity cost of holding non-yielding bullion, denting its appeal.
  • Investors also continued to watch for policy signals from China on whether it is considering dialling back its zero-Covid policy. China is the world’s second largest market for gold jewellery next to India