View this email in your browser

Morning NOTE

10 May 2022


The ZAR weakened to  16.2575  before recovering in overnight trading to open at 16.1200.


  • The Rand weakened aggressively on the back of risk aversion following a bond market rout across the world.
    • Central banks all committing to aggressive policy action to reign in inflation,  resulting in an exit and flight to safety.
    • The sale of risk assets and the flight to cash, resulting in the US dollar being one of the largest beneficiaries.
    • At one stage the US 10YT traded above 3.2% for the first time since 2018, before recovering to 3.08%
    • SA government bonds were also not spared and the generic 10Y traded at 10.21% (vs 9.3% at the start of 2022).
    • However, this morning we see a  late Asian recovery in stocks ,allowing for the possibility of a profit taking session on short positions.
      • This phenomenon known as “ Turn Around Tuesday”, will be a distinct possibility ahead of tomorrow’s key US CPI report.
This week on the data front, we have  the following market moving information
  • Tomorrow:
    • 14h30  : US inflation expected 8.1% vs 8.5% previous.***
    • 14h30 : US Core inflation expected 6% vs 6.5% previous
  • Thursday:
    • 11h30 : SA mining production  +3% expected vs -6 % previous (YOY)
    • 11h30 : Gold production +8.5% expected vs -9.3% previous (YOY)

***Comment : with markets so stretched, an inflation print that is lower than expected could results in large risk rally.

But, be aware that the trend remains for higher inflation and the reverse could also happen.

  • Today: Traders continue to watch the Risk trade.
    • However, with a decline in US yields, and a rebound in equities, the ZAR could benefit from some USD  profit taking.
    • Be aware that the USD remains in a bull-run and anything sub-16 could be used as hedging opportunities for short term importers.
  • USDZAR :  Expect a range 15.9600-16.3800
    • Importers 16.0900-15.9600
    • Exporters 16.2500-16.3800
  • EURZAR :  Expect a range of 16.8200-17.2100
    • Importers 16.9900-16.8200
    • Exporters 17.1600-17.2100
  • GBPZAR :  Expect a range of 19.7100-20.1500
    • Importers 19.8700-19.7100
    • Exporters 20.0200-20.1500
  • USDZAR 16.1300
  • EURZAR 17.0500
  • GBPZAR 19.9400


  • Eskom announced on Monday afternoon that it will implement stage 2 load shedding from 5 pm until 10 pm.
    • South Africans got a temporary relieve when power cuts, suspended on Saturday due to improvements in the generation capacity.
    • However, Eskom said South Africans should anticipate more power cuts this week as the increase in electricity demand is overwhelming its system, especially during peak hours. EWN
  • Eastern Cape ANC chairperson Oscar Mabuyane said Cyril Ramaphosa had championed renewal of the governing party and he must be given another five years to focus on this task.
    • He also said the EC ANC, will work hard to ensure Ramaphosa is once again elected as ANC president. IOL
  • Democratic Alliance (DA) leader John Steenhuisen on Monday defended his recent visit to Ukraine, saying he wanted to witness the destruction with his own eyes.
    • He said the war should be condemned by the South African government and that it would have a lasting impact on the South African economy.
    • Steenhuisen cited that SA was heavily reliant on Ukrainian wheat and other products. News24
  • South Africa’s COVID-19 positivity rate has soared by up to 31.1%, this is the highest positivity rate in recent months.
    • The notable increase comes after more than 8,500 new infections were recorded across the country in the last 24 hours.
    • Yesterday, SA reported 7 more deaths, setting the total at 100,523
    • Health officials sounding the alert ahead of what promises to be a heavy winter-flu season.


  • Wall Street’s sell-off accelerated in the final hour of trading with the Dow closing down 653 points below the 4000 level and the S&P 500 and Nasdaq plunging 3.2% and 4.3%.
    • The moves respectively, pushing the 3 major indexes to levels not seen in over a year.
    • Investors have been increasingly concerned about the implications of tighter global monetary policy on the growth momentum.
    • Adding to the sour mood were signs of slowing economic activity in China, due to its lockdown policy.
  • This morning we see a recovery in Asian stocks on the back of some profit-taking ahead of tomorrow’s key US CPI report.
  • The yield on the 10-year US Treasury topped 3.2%, a level not seen since November 2018, as investors digest the narrative of a looming policy tightening cycle against a backdrop of slowing global growth.
    • The Federal Reserve hiked its benchmark policy rate by half a percentage point for the first time since 2000, while markets are now pricing in a more than 75% chance of a 75 bps hike in June.
    • With inflation running at 40-year highs and the job market extremely tight, the FED is being forced to change the narrative and signal a faster tightening. source: U.S. Department of the Treasury
  • The Dow  fell 653 points to 32,245
  • The Sp500 declined 132 to 3,991
  • The Nasdaq  fell 521 to 11,623
  • Asian markets were not spared after Wallstreet sold off aggressively following a global central bank commitment to fight inflation and raise interest rates.
    • In Japan, the Nikkei 225 fell 1.5%, reaching its lowest level in nearly two months.
      • The index tracking a sharp sell-off on Wall Street as worries about higher interest rates and their impact on economic growth dented risk appetite.
      • Rising interest rates have particularly pressured technology names, with sharp losses from SoftBank Group (-3.9%)
      • Resource-related stocks also declined, after commodity prices tumbled overnight.
  • Crude oil fell as demand concerns resurfaced, with the US WTI falling more than 6% to trade at $102.80/bl.
    • Traders citing price pressure from a stronger dollar and concerns about weakening global demand as China continues to intensify lockdowns.
    • Recent customs data showed that crude imports by the world’s second-largest economy fell 4.8% in the first four months of 2022 compared with last year.
    • Talks of the potential for a recession if central banks go too far also cited as a risk to crude oil demand. Energy News
  • Gold traded at $1860/oz after a 3-week decline. Bullion remaining under pressure from a strong dollar and rising Treasury yields.
    • Traders continued to bet on further Fed hikes to bring decades-high inflation under control, even at the risk of some economic pain.
    • The metal is down more than 6% from its April high as the dollar traded at its highest in 20 years against a basket of major currencies.
    • Fed chair Powel assured Americans that the central bank will do what it takes to curb surging inflation, while acknowledging that this could risk economic pain.
  • On the industrial metals side;
    • Copper futures trade below the $4.2/tonne mark. It was a level not seen last December and down roughly 20% from a record peak of $5 touched in early March.
    • Traders citing the coronavirus-induced lockdowns in top consumer China sparking off concerns about demand and growth.
    • Customs data showed that China’s copper imports in April fell 4% from the same month a year earlier, as lockdowns hurt manufacturing activity and consumption.
    • Pressuring prices further was the continued appreciation of the US dollar, making the metal more expensive for holders of other currencies. TE
  • The dollar index rose above the 104 mark on Monday, hitting a fresh 20-year high.
    • Investor expectations of further Fed monetary tightening to combat inflation and fears of slowing global economic growth drove investors into the safety of the dollar.
    • Traders now look ahead to fresh inflation data due on Wednesday to gain insight on the central bank’s possible next steps.
    • Futures markets are pricing a 75% of a 75 basis point rate increase at the Fed’s next meeting in June and more than 200 basis points of tightening by year-end.
  • Safe haven

    • Uncertainties surrounding the outlook for inflation,
    • The war in Ukraine and Chinese lockdowns were among the factors that spurred safe-haven demand for the dollar. FZ news
  • Biden tells top national security officials leaks about intelligence sharing with Ukrainians must stop.
    • Last week, after the White House denied providing direct intelligence to Ukrainians “with the intent to kill Russian generals,”
    • He told them that it was not helpful for information to become public about what the US was sharing with the Ukrainian forces fighting the Russian invasion. CNN
  • On Russia’s annual Victory Day, President Vladimir Putin reiterated his accusation that the West left him no choice but to invade Ukraine.
    • He offered few clues on the direction of the conflict and planned air shows were cancelled.
    • Russia celebrates the end of WW2 and the defeat of the NAZI’s as a matter of national pride every year. CNBC
    • Around 10 p.m. local time (3 p.m. ET), witnesses in the center of the city said they heard several large explosions which shook buildings.
    • Ukraine accused Russia of dropping a bomb on a school Saturday in the Luhansk region where people were taking shelter. At least 60 people are feared dead. Reuters
COVID-19 SOURCE Cases / Deaths / Recoveries
  • WORLD 517,558,877 / 6,277,421 / 472,328,072
  • USA 83,605,455 / 1,024,628 / 80,974,128
  • SA 3,844,625 / 100,533 / 3,680,855
Copyright © 2022 RussellStone Treasury All rights reserved. Our mailing address is: Want to change how you receive these emails? You can update your preferences or unsubscribe from this list.