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Morning NOTE

12 July 2022


The ZAR weakened on the back of a rampant Dollar as Fed rate hikes and a potential global recession caused panic amongst investors.


  • The Rand declined to 17.1800 on the back of a surging Dollar as the Dollar (DXY) surged to 20 year highs in anticipation of a 75 bps hike at the next FOMC meeting.
    • Markets reacted to news that noted dove, Bostic backed a 75 bps hike. The news added to the Dollar bull run.
  • Commodity currencies particularly hard hit, as the Australian, New Zealand and Canadian  dollars as well as the South African Rand took a beating.
    • Commodity prices all lower on the back of fears of a global recession as well as a new variant in China.
  • Locally, Eskom blackouts continue to drag down sentiment, even after a surprising ratings upgrade from S&P.
  • However, the key item for the week remains US inflation, with another high print of 8.8% expected vs 8.6% previous.
    • A high print, would likely support the Fed’s view, likewise a lower print could reverse a large portion of FX losses.

On the data front we have ;

  • Today  :
    • 13h00 : SA manufacturing data with expected -1.6% vs -7.8 previous YOY (** optimism on the back of the lifting of covid-19 restrictions)
      • And +1% MOM vs -5.8% previous.
  • Wednesday :

    • 13h00 : SA retail sales ,  with +1.3% expected  vs +3.4%previous  YOY (**here we see a slowdown in consumer spending to fuel prices).
    • 14h30 : US INFLATION (CPI) expected 8.8%  vs 8.6% YOY previous
    • 14h30 : US CORE INFLATION (CPI) expected 5.8%  vs  6% YOY previous
  • Thursday :

    • 11h30 : SA mining(expected -18% YOY) and Gold production (expected -30% YOY) . strikes continue to hamper the industry.
  • Movement Today :
    • This morning we opening weaker at levels not seen since Covid-19, as the Dollar continues to steam ahead.
    • With a weaker Bias near the topside of the USDZAR range.
    • However, the focus remains on tomorrow’s inflation data, with CPI expected at 8.8%.
  • NB: We continue to advise exporters to hedge forward, as forward points and FX options also in their favour.
  • Importers , can hold off as we do expect a retracement in ZAR weakness.
  • USDZAR :  Expect a range 16.9500-17.3300
    • Importers 17.0300-16.9500
    • Exporters 17.1700-17.3300
  • EURZAR :  Expect a range of 16.9400-17.3700
    • Importers 17.0900-16.9400
    • Exporters 17.2250-17.3700
  • GBPZAR :  Expect a range of 20.1500-20.4700
    • Importers 20.2400-20.1500
    • Exporters 20.4700-20.3800


  • USDZAR 17.1300
  • EURZAR 17.1400
  • GBPZAR 20.2900


  • 1 year on, SA looks back at the July unrest of 2021.
    • Some South Africans have expressed doubt on whether the country has the security capacity to protect the nation if another unrest were to erupt.
    • Exactly one year ago, the looting spree hit Gauteng, starting on the East Rand those violent acts resulted in the deaths of over 300 people.
    • Citizens have questioned South Africa’s security capabilities and others have questioned what government’s plan is to stop the demonstrations by truck and taxi drivers from blowing up.
    • …following the protests in Mbombela last week over the rising cost of living and fuel prices.
  • ESKOM :
    • Discovery  insure said that Power surge claims are up 50% in the last six months.
      • SA insurance companies are starting to talk about far higher anniversary renewals, or providing the same cover for an additional premium, due to power surges caused by Eskom.
    • SA’s labour minister said he’ll oppose any move to privatise the beleaguered power utility Eskom, as it struggles to generate power, avoid outages and repay $23 billion of debt.
      • The administration is in the process of breaking up Eskom into three separate entities — power-transmission, generation and distribution.
        • Currently Eskom has debt of R396 billion.   Moneyweb
    • This after S&P associate director of sovereign ratings in the Middle East and Africa,
      • …said in an interview the ones that have done better are the ones that have done some kind of a wholesale privatisation,”
      • …“Then the problem at least is no longer the government’s and typically the utilities run better.”
  • In a fight to survive the next election, the ANC wants to create 2 million jobs before 2024.
    • SA Labour Minister Thulas Nxesi said 2 million new jobs is needed before the next elections as the nation grapples with one of the highest unemployment rates in the world.
    • About 12 million South Africans are without jobs.
    • Unemployment according to the expanded definition, which includes people who were available for work but not looking for a job, is at 45.5%
      •  It is the highest rate on a list of 82 countries monitored by Bloomberg. Bloomberg


  • The main US stock indices declined on Monday, with investors treading carefully as fresh economic data and corporate earnings reports to be released this week will shed light on current recession risks.
    • The Dow Jones lost over 160 points, while the S&P 500 and the Nasdaq fell 1.1% and 2.2%, respectively.
  • Sentiment remained clouded by bets that the FOMC will continue to hike interest rates aggressively.
  • On the corporate front, Twitter shares slumped over 11% after Tesla CEO Elon Musk said he cancelled his takeover deal because the social media company violated several merger agreement provisions.
    • The rest of the tech sector followed, with Alphabet and Amazon both losing 3%.


  • The yield on the 10-year US bond fell  to below the 3% mark as investors continued to assess recession risks against the outlook of interest rate hikes by the Federal Reserve.
    • Risk sentiment was muted to start the second week of July, as a batch of economic data, including June consumer prices, will give further information on the extent of the Fed’s aggressiveness in its next decision.
  • Several policymakers, including Chair Jerome Powell, already backed a 75bps rate hike in the central bank’s next meeting while saying that monetary policy needs to be more restrictive to tame inflation, even if it hampers growth.
  • In the meantime, the yield for 2-year instrument was at nearly 3.1%, remaining above its 10-year counterpart for the fourth straight session and reflecting higher perceived risk for the short-term.


  • The Dow  declined 164 to 31,173
  • The SP500 declined 44 to 3,854
  • The Nasdaq fell 262 to 11,372

Futures Trading:

  • image : Trading economics


  • Asian markets lower following the drop in Wallstreet.
    • In Japan, the Nikkei 225 dropped 1.77% to close at 26,337, erasing gains in the previous two sessions and tracking overnight losses on Wall Street.
      • Investors bracing for US inflation data that could bolster the case for another supersized rate hike from the Federal Reserve.
      • Investors also turned cautious amid a resurgence of Covid cases in Japan, stoking fears of an economic slowdown.
  • WTI crude oil futures erased earlier declines and traded above the $104 per barrel mark on Monday.
    • Renewed supply concerns prevailed over deepening fears of a global economic slowdown.
      • Russia threatened to suspend flows from the CPC pipeline that takes oil from landlocked Kazakhstan to Russian export terminals in the Black Sea, responsible for more than 1% of global supply.
      • In the meantime, traders monitored the G7’s possible price ceilings for imports of Russian oil in an attempt to limit Moscow’s revenues while reducing the detriment to Europe’s ongoing energy crisis.
      • Earlier in the session, crude prices were over 3% lower on the possibility that Chinese cities could return to strict Covid lockdowns after testing for cases of a highly transmissible Omicron subvariant.
      • Prolonged fears of a global recession weigh on market sentiment, as major central banks pledge aggressive rate hikes to combat surging inflation. Energy news
  • Gold was flat around $1,740 an ounce on Monday, hovering near its lowest levels in over nine months,
    • Traders citing a towering dollar that continued to dampen demand for the greenback-priced bullion.
    • Persistent concerns about global economic growth and an increasingly restrictive US monetary policy continued to lift the safe-haven dollar at the expense of other assets, including gold.
    • Data released Friday showed still robust US hiring in June, supporting a 75 bps hike.
    • Investors are also bracing for June inflation and July consumer sentiment data this week that could throw light on the path of US monetary policy.
  • The US dollar topped the 108 mark for the first time since October 2002 as investors have dramatically upped their bets that the Federal Reserve will move even more aggressively to tame inflation.

    • Several policymakers, already backed a 75bps rate hike in the central bank’s next meeting.
    • The confirmed that the Fed will use its monetary policy tools to return inflation to the 2% target, even if it hampers growth.
    • Such a narrative was exacerbated by a stronger-than-expected jobs report last week.
    • While market participants are increasingly concerned about the economy’s prospects, businesses remain optimistic about their progress, with an unwavering appetite to hire.
    • This dollar’s strength has been seen across the board, but some of the most pronounced buying activity was against commodity-linked currencies.
  • The Euro

    • The Euro depreciated further to below $1.01, the lowest in 20 years, falling towards the dollar parity on concerns the energy crisis would send Europe into a deep recession.
    • It would then make it more difficult for the ECB to tighten monetary policy.
    • The key gas pipeline Nord Stream 1 started annual maintenance on July 11th, flows are expected to stop for 10 days but concerns linger that supply may not return to current levels after the works.
    • However, the ECB is highly expected to raise key rates by 25bps later this month, the first increase in more than 11 years while the Federal Reserve is seen delivering a 75bps hike, following a cumulative 150bps increase since March.

  • The bankruptcy filing from Three Arrows Capital (3AC) triggered a downward spiral that wrapped in many crypto investors.
    • Following the plunge in cryptocurrency prices and a particularly risky trading strategy, that combined to wipe out its assets and leave it unable to repay lenders.
    • The hedge fund failed to meet margin calls from its lenders.
  • In addition, Fed Vice Chair Lael Brainard said Friday that regulation is needed or the industry could become a wider danger to the financial system.
    • The lack of regulation guidelines has been a confusing and troublesome issue for the crypto industry.
    • Despite this year’s crash in the price of bitcoin, U.S. regulators continue to call attention to the industry’s potential, growth and reach, as well as the potential consequences of not having a clear framework for it. CNBC

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