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Morning NOTE

1 July 2022


The ZAR remains under pressure and traded following the Eskom labour grid-lock as the country remains in Stage 6.



  • The Rand weakened to 16.4700 as the energy crises continues to leave South African households and businesses helpless.

    • In the middle of winter, Eskom continues to loadshed at an alarming rate as there appears to be agreement between unions and the SOE.
    • Business leaders and citizens alike have all pleaded with President Ramaphosa to step in and “fix” the national crises at ESKOM.
    • On Friday, ESKOM and Unions will return to the Central bargaining forum.
    • To date, this will go down as SA’s worst week of loadshedding, with today (Friday) marking the fourth straight day of Stage 6 rolling blackouts.
  • To add to the woes, Stats SA reported that SA PPI (producer inflation), printed at a hefty 14.7% YOY vs 14.1% expected.
    • MoM was 1.8% vs 1.3%
    • It marks the sixth straight month of double-digit producer inflation and the highest reading since records began in 2013.
    • This will likely get passed onto consumers and the SARB will now be forced to hike. (NB: ZAR positive).
    • The trade balance however showed an improvement with R28.35bn vs R16bn previous and R22b expected. (also ZAR positive).


  • Yesterday, the ZAR retreated further on the back of ESKOM stage 6.
    • The local unit hitting 16.4700 as the economy desperately struggles along with rolling black-outs.
  • With SA PPI once again higher than expected at 14.7%.
    • And we think that any positive news out of ESKOM, will likely to see a swift return for the local unit.
  • Once again this will dominate the session.
    • Lower US rates will be ZAR supportive.
    • Also US10YT traded below 3.00% at 2.95%, as investors remain worried about a recession in the world’s largest economy.
    • This morning we opening near the weaker end of the ZAR range with stocks down in Asian trading adding to negative Risk sentiment.
      • A break of yesterday’s high 16.4700 targets 16.5200 before 16.6700
      • Likewise a break of 16.2500 (Asian $ low), opens up a swift return back to the figure R16/$.
  • USDZAR :  Expect a range 16.1100-16.5200
    • Importers 16.2500-16.1100
    • Exporters 16.4000-16.5200 
  • EURZAR :  Expect a range of 16.8900-17.1800
    • Importers 17.0300-16.8900
    • Exporters 17.1000-17.1800 
  • GBPZAR :  Expect a range of 19.6400-20.0100
    • Importers 19.7500-19.6400
    • Exporters 19.8700-20.0100


  • USDZAR 16.3600
  • EURZAR 17.1100
  • GBPZAR 19.8200


STAGE 6 : Economists warn is going to hit the economy hard.

  • While the actual economic impact is yet to calculated, economists and business leaders are already warning that the toll will run into billions of Rands.
  • Additional ramifications such as lost investment, a negative impact on SA’s already sub-investment grade credit rating and deteriorating business- and consumer confidence levels. Moneyweb
  • Eskom increased its wage increase offer to 7%.
    • The company and unions were hopeful that it would be enough motivation for the workers but not everyone appears convinced as the utility records high levels of absenteeism.
    • Eskom and union negotiators are expected to return to the central bargaining forum on Friday morning to continue talks.
    • However, both sides go into the fifth round of talks burdened by defiant workers who still refuse to get back to their posts. EWN
  • SA’s Trade balance recovered with a strong showing on the country’s export potential.
    • Exports advanced 17.8% to ZAR 179.46 billion, mainly due to higher shipments of mineral products (35%), base metals (28%), chemical products (21%) and vegetable products (24%).
    • Meanwhile, imports rose at a softer 10.9% to ZAR 151.11 billion, driven by mineral products (11%). source: South African Revenue Service
  • Opposition political parties continued to press President Cyril Ramaphosa to address the nation on the prevailing power outages in the country.
    • In addition, they also want an urgent debate focused on the latest bout of load shedding.
    • South Africa braved alternating stage 4 and stage 6 power cuts this week – prompting opposition parties to demand more action from Parliament and Ramaphosa.

STAGE 8 ?  energy analysts warn of a disastrous stage 8 if the crises is not resolved soon.



  • US stock futures lower on Friday after the S&P 500 closed out its worst first-half performance in decades.

  • Investors remained worried about high inflation and the prospects of a recession in the USA.
    • Thursday marked the end of the first half of the year, where the S&P 500 dropped 20.6% for its worst first-half decline since 1970.
    • The Dow was also down more than 15% in the first half of the year, while the Nasdaq Composite lost 29.5%.
    • Those first-half losses came as investors grappled with surging inflation and aggressive interest rate hikes.
    • Traders fearful that tighter financial conditions could lead to a recession.
  • Meanwhile, the Fed-preferred core PCE price index declined to 4.7% year-on-year in May 2022 from 4.9% in April, signalling easing prices but remaining near multi-decade highs.


  • The yield on the US 10-year fell below the 3% mark, retreating to levels not seen in three weeks.
    • Investors rushed to safe-haven assets due to persistent fears that the Fed will tip the US economy into a recession as it attempts to rein in inflation.
    • Weak economic data this week fuelled those concerns further, namely signs of a slowdown in consumer spending, with morale among consumers at a 16-month low.
      • Also worse-than-expected GDP figures.
  • On the other hand, the core PCE Price Index inflation, the preferred gauge of inflation by the Fed, eased to a six-month low of 4.7 percent in May 2022.
    • The Fed preferred inflation gauge indicating that price increases could be slowing.


  • The Dow fell 253 to 30,775
  • The SP500 fell 33 to 3,785
  • The Nasdaq fell 149 to 11,028

Futures Trading:

  • image : Trading economics


  • Asian markets starting the month on the back foot with heavy losses across the board.

    • Japan leading the way, with the Nikkei 225 down 1.98% to around 25,885, extending losses in the previous session.
      • Technology stocks led the market lower, with sharp losses.  TE
      • Latest data also confirmed a weak manufacturing PMI reading in Japan for June, while the country’s unemployment rate nudged higher in May.
      • Sentiment among Japan’s large manufacturers worsened in the April-to-June period, according to the BOJ ‘s quarterly tankan business sentiment survey.
      • Traders citing, a slew of downbeat economic data weighed on investor sentiment.
  • Brent crude futures held around $109/bl on Friday and were on track to decline for the third straight week amid concerns that a potential recession will dampen energy demand.

    • Data this week showed weakness in US consumer spending, which is by far the biggest contributor to gross domestic product.
    • Recent weakness in oil prices also came despite signs that the physical supply remains very tight.
    • On Thursday, OPEC+ agreed to stick to its output strategy after two days of meetings, increasing production by 648,000 barrels per day in July and August.
    • US President Joe Biden will travel to the Middle East later this month to urge Saudi Arabia and the UAE to increase supplies further.
    • However, reports earlier this week suggested the two major producers are at, or very close to, near-term capacity limits.  Energy News
  • Gold weakened toward $1,800 an ounce on Friday, hovering at its lowest levels in nearly seven weeks as a strong dollar continued to dampen bullion demand.

    • Also, a broad sell-off in risk assets forced investors to liquidate gold positions to offset losses in other holdings.
    • Fed policymakers indicated this week a strong commitment to bringing down inflation even at the risk of a recession, signalling another 75 basis point rate increase in July.
    • Although gold is widely considered as a hedge against inflation and economic uncertainties, higher interest rates raise the opportunity cost of holding non-yielding bullion. Kitco metals
  • The US dollar moved higher, up to around 104.85 on Friday and was set to gain for the week.

    • Supported by the FED’s firm hawkish stance and escalating risks of a global recession.
    • Fed policymakers indicated this week a strong commitment to bringing down inflation even at the risk of a recession.
    • Another 75 bpts in July.
    • The dollar also benefited at the expense of commodity currencies and other risk assets from fears of a global downturn. FX news
  • The Euro weakened to the $1.0460 mark, edging close to the 5-year low of $1.035 hit in May amid higher demand for the dollar’s safety.

    • Also the monetary policy disparity between the ECB and the Fed weighing on the single currency.
    • Investors’ preference toward the safer Dollar grew as concerns of an energy crisis in Europe threaten the Eurozone’s economy ahead of the winter.
    • Confidence in the currency bloc was also dented after ECB President Lagarde said that she believes it is unlikely that the Eurozone will go back to an environment with low inflation.
    • Earlier, the ECB’s chief had confirmed a 25bps rate hike in July after multiple ECB policymakers called for a steeper increase.
    • Conversely, Cleveland Fed President Mester backed a 75bps rate hike in the Fed’s next meeting should economic conditions remain unchanged. FX

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