Morning NOTE

GOOD MORNING

The ZAR gained on some USD profit taking ahead of today’s key US inflation report.

OPENING RATES

• USDZAR 16.0900
• EURZAR 16.9500
• GBPZAR 19.8200

SOUTH AFRICA   

• Eskom reintroduced loadshedding as the grid remains under pressure, following multiple unit breakdowns.
  
  
  • The power utility warned of the possibility of higher stages should any further breakdowns occur during the day.
  • “The onset of winter has seen increased demand and this will lead to severe capacity constraints throughout this period, particularly during the evening and morning peaks.”
  • Unfortunately, this would generally require the implementation of load shedding during the evening peaks. News24
• Covid; the health department reported 26 more deaths and an additional 7,523 new Covid cases.
  
  
  • South Africans bracing for another wave as the flu season also runs concurrent in the SA winter months.

GLOBAL MARKETS

Stocks:

• In a highly volatile regular session on Tuesday, the Dow fell for a fourth straight day by 0.26%, while the S&P 500 and Nasdaq Composite gained 0.25% and 0.95%, respectively.
• Investors will be watching for any upward surprises ahead of today’s US CPI report.
  
  
  • In its latest financial stability report;
  • The Fed said that “further adverse surprises in inflation and interest rates, particularly if accompanied by a decline in economic activity, could negatively affect the financial system. CNBC

Bonds:

• The yield on the 10-year US Treasury note, fell to 2.95% as investors took a breather after a recent sell-off.
  
  
  • The yield hit 3.20% on Monday for the first time since November 2018, with the market pricing in the chances of an increasingly hawkish FOMC.
  • Now markets have grown concerned about the implications of such an aggressive tightening on the global economic growth.
  • Investors are now awaiting the US inflation report for May for further clues on the central bank’s rate-hike path. source: U.S. Department of the Treasury

YESTERDAY

• The Dow fell 84 to 32,160
• The SP500 rallied 9.8 to 4,001
• The Nasdaq  gained 114 to 11,737
• image : Trading economics

OVERNIGHT HEADLINES

• Asian markets mixed, after China Inflation Rate Hits 5-Month High.
  
  
  • China’s annual inflation rate accelerated to 2.1% in April from 1.5% in March, above forecasts of 1.8%.
    
    
    • It is the highest reading since November, amid logistic disruptions caused by strict COVID measures.
    • Meanwhile, producer prices increased 8% YoY, also higher than expectations of 7.7% but easing from 8.3% in March. TE
  • In Japan, the Nikkei 225 Index rose 0.32% to 26,250 as investors bought up companies with an upbeat outlook, while staying cautious of any upward surprise ahead of the release of US inflation data.
    
    
    • Analysts suggested that markets are waiting for confirmation that US consumer prices have peaked out before making big bets.
    • In Australia, the ASX 200 Index fell 0.6% to around 7,003, as investors remained cautious ahead of the US CPI report.
• Crude, WTI jumped more than 1% to above $101 /bl, after losing 9% in the previous two sessions.
  
  
  • Prices spiking after supply side challenges returned after the EU said it was  gaining support to ban Russian oil.
    
    
    • However while major producers warned they may not be able to meet demand without further investment.
  • Analysts said that the impact of the embargo could be limited if the ban is watered down, but prices could still go higher.
    
    
    • Highlighting supply concerns further, the UAE warned that when fuel demand recovers from the pandemic, that OPEC+ may not be able to meet demand without further investment.
    • This followed the Saudi Arabian energy minister’s remarks that the world needs to pay attention not just to tight crude supply but energy capacity running short more broadly. Energy News
• Gold fell below $1,840/oz as it remained under pressure from a strong dollar.
  
  
  • The dollar index remained near the 104 mark, the strongest in 22 years as traders switch into the Buck from bullion holdings.
  • Expectations of further Federal Reserve monetary tightening to combat inflation and fears of slowing global economic growth drove investors into the safety assets.
    
    
    • Investors are now awaiting the US inflation report for May for further clues on the central bank’s rate-hike path. Kitco metals
• The Dollar index declined to 103.8 after 10YT yields fell below 3.00%. The Greenback however hovering near a 2-decade high, as investors looked ahead to key inflation data today.
  
  
  • The CPI print would provide clues on how aggressive the Federal Reserve will be in tightening monetary policy.
  • Investors have expectations calling for an 8.1% YOY  increase compared with an 8.5% rise recorded in March.
  • The Fed raised its benchmark interest rate by 50 basis points last week, the largest in 22 years.
  • Markets are priced for another hike of at least 50 basis points at the central bank’s June meeting, according to CME’s FedWatch Tool.

COVID-19 SOURCE https://www.worldometers.info/coronavirus/

Cases / Deaths / Recoveries

• WORLD 518,566,678 / 6,280,390 / 473,453,106
• USA 83,778,760 / 1,025,104 / 81,059,093
• SA 3,852,148 / 100,569 / 3,685,196