Morning NOTE

GOOD MORNING

The ZAR weakened in Friday trading after Dollar shorts booked profits near the lows following a 3.5% rally for the week.

• USDZAR 16.6000
• EURZAR 17.0200
• GBPZAR 20.2700

SOUTH AFRICA   

• DROP IN FUEL PRICES.

• South Africans will get some relief at the pumps come 3 August 2022.
  • The price of petrol (93 and 95 ULP and LRP) will drop by R1.32 per litre, 0.05% sulphur diesel by R0.88/l and 0.005% sulphur diesel by R0.91/l.
  • Minister of Mineral Resources and Energy Gwede Mantashe said the main reasons for the fuel price adjustments are due to the average Brent Crude oil price decreasing.
  • Oil prices declined from $115.77 per barrel to $105 during the period under review.
  • Lower crude oil demand due to recession concerns and Covid-19 resurging in China and OPEC and non-OPEC members deciding to increase oil production. Moneyweb
• An effort to mount a rebellion against President Cyril Ramaphosa at the ANC policy conference has been neutralised.
  • The ANC in KwaZulu-Natal appears to have conceded that their primary fight will occur at the December elective conference.
  • A planned protest against Ramaphosa led by Carl Niehaus did not attract any support.

• SARS strike

  • The South African Revenue Service has marginally increased its wage offer to unions from 1.3% to 1.5%.
  • While unions are not yet budging from their CPI plus 7% wage increase demand, they say they are open to a meeting should SARS request it.
  • On Friday, 21 SARS branches around the country were closed for in-person visits. NEWS 24

GLOBAL MARKETS

Stocks:

• Last month (July ), the Dow gained 6.7%, the S&P 500 rallied 9.1% and the tech-heavy Nasdaq surged 12.4%, with the 11 S&P sectors all finishing the month higher.
  • US stocks rallied in relief, after initial pessimism reached extreme levels.
  • However, upbeat earnings reports from major companies and a less hawkish Federal Reserve sustained the move higher.
• This morning, the US stock futures were lower on Monday after the major averages capped off their best month since 2020.
  • Data last week showed that the US economy shrank for the second straight quarter, while the Fed-preferred inflation measure hit the highest level since January 1982.
• Investors now await the July non-farm payrolls report to gain insight on the strength of the jobs market.

Bonds:

• The US 10-year declined below 2.7%, following a brief spike on the back of the PCE price index topped forecasts to reach its highest in over 40 years.
  • The rise in the Fed’s preferred inflation gauge added to concerns that the US economy may continue to contract as the central bank moves to restrictive monetary policy to fight soaring inflation.
  • However, treasury yields remained close to the 3-month lows touched the end of July.
  • Traders citing, the worsening macroeconomic backdrop strengthened the appeal of safe assets.
• Investors continued to assess the extent to which the Fed may tighten policy by the end of the year, after the US GDP unexpectedly contracted for the second consecutive period during the second quarter.

ON FRIDAY

• The Dow rallied 315 points to 32,845
• The Nasdaq gained 228 to 12,390
• The SP500  gained 57 to 4,130

Futures Trading:

• image : Trading economics

OVERNIGHT HEADLINES

• Asian markets trading higher across the boards, as investors step back looking for bargains on the back of bets that Central bank tightening is about to slow down dramatically.
  • Data out of the USA, Europe and also China conforming growth is slowing down.
  • Traders betting Growth will determine future rate policies and slow down the current liquidity drain.
    • In Japan, the Nikkei 225 rose 0.69% to 27,993, closing at its highest levels in nearly two months.
      • Investor sentiment lifted by upbeat corporate results from major domestic firms.
      • Investors also watched for market reaction to Japanese manufacturing data which continued to expand in July, although at the slowest pace in ten months.
    • In Australia, the ASX rose 0.69% to close at 6,993. it was the highest close for nearly 2 months.
      • Traders citing improved risk sentiment as well a rally in commodity stocks.
      • However, Investors are also preparing for the RBA’s rate decision on Tuesday.
      • Consensus remains for a third straight 50 basis point interest rate hike as it aims to get ahead of surging inflation. Reuters
• Crude oil futures fell below $98/bl after declining for two straight months.
  • Traders citing weakening global demand following the US GDP release.
    • Demand concerns for now outweighed signs of ongoing supply tightness.
  • Official Chinese data released over the weekend showed that factory activity in the world’s largest oil importer contracted unexpectedly in July.
    • Markets now look ahead to an OPEC+ meeting on Wednesday where it is expected to maintain its current production quotas .
  • Traders expecting this to support prices as supply remains tight due to the War in Ukraine.  Energy News
• Gold continues to recover following the drop in treasury yields.
  • The US 10YT falling sharply to 2.65%, supporting the demand for Bullion. NB: Gold’s inverse relationship to US yields.
  • A slowing US economy prompted markets to scale back hawkish expectations from the Federal Reserve.
  • US GDP data showed the US economy shrank for a second straight quarter, fueling recession fears and raising expectations that the Fed may need to slow down the pace of interest rate hikes.  Kitco Metals
• The US Dollar traded at 105.75 near its lowest levels in almost a month, as an increasing risk of a US recession bolstered the case for a less aggressive monetary tightening from the FED.
  • The Q2 GDP data, released a day after the FOMC raised its policy rate by 75 basis points in a widely expected move.
  • Fed Chair Jerome Powell saying that it will likely become appropriate to slow the pace of rate increases depending on the flow of data.
  • However, the Dollar recovered on Friday after the annual PCE price index hit the highest level since January 1982.
  • Investors now look ahead to the monthly jobs report due on Friday for fresh clues on the likely direction of US monetary policy. FX news

• GLOBAL RECESSION FEARS

  Germany Retail Sales Retreat

  • Retail sales in Germany were down 1.6% mom in June of 2022, following an upwardly revised 1.2% rise in May and compared to market forecasts of a 0.2% increase.
  • A general price increase is weighing on consumers’ affordability and cutting spending across the broad.
  • Year-on-year, retail sales dropped 8.8%, the biggest fall since the series began in 1994.

• HOWEVER

  • Inflation remains sticky as the EU reported 8.9% across the region in July.
  • The ECB also embarking on its tightening phase, to slow down inflation.
  • Markets however scaling back rate hike expectations due recessionary fears as well as energy supplies due to the Russian Gas supplies. Bloomberg