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Morning NOTE

13 July 2022


The ZAR recovered after a rebound in risk assets to settle around the R 17.0000/$ level.


  • The Rand recovered to trade at R17/$, after initially hitting R17.1500/$ in early trading.

  • Traders squarely focussed on today’s US CPI data release and its effect on the FED monetary policy path.
    • The data is due at 14h30 SA time.
  • Earlier in the day Manufacturing production in SA declined  by 2.3% from a year earlier in May of 2022.
    • The decline followed on a downwardly revised 7.6% slump in the prior month and slightly better than market forecasts of a 2.4% drop.
    • It marks the third consecutive month of contraction in manufacturing activity although at a slower pace than in the prior month.
    • as production fell much slower primarily for the manufacture of motor vehicles, parts & accessories.
    • On a seasonally adjusted monthly basis, manufacturing output went down by 0.2%, defying market expectations of a 1.5% rise. source: Statistics South Africa

On the data front:

  • Today :
    • 13h00 : SA retails sales with  +1.5% expected vs +3.6% previous YOY
    • 14h30 : US CPI  8.8% expected vs 8.6% previous.
    • 14h30 US Core CPI 5.7% expected vs 6% previous
  • Thursday :

    • 11h30 : SA mining(expected -18% YOY) and Gold production (expected -30% YOY) . strikes continue to hamper the industry.
    • 14h30 : US PPI 0.8% MoM expected.


  • This morning we opening with a neutral bias ahead of the CPI release with +8.8% expected.
  • The ZAR opening in the middle of weeks range (16.8000-17.1700)
    • NB: We continue to  advise exporters to hedge forward, as forward points and FX options are in their favour.
    • Importers, can hold off as we do expect a retracement in ZAR weakness.
  • USDZAR :  Expect a range 16.8700-17.1200
    • Importers 17.0300-17.1200
    • Exporters 16.9500-16.8700
  • EURZAR :  Expect a range of 16.9400-17.2300
    • Importers 16.9900-16.9400
    • Exporters 17.1000-17.2300
  • GBPZAR :  Expect a range of 20.1300-20.3800
    • Importers 20.1900-20.1300
    • Exporters 20.3000-20.3800


  • USDZAR 16.9800
  • EURZAR 17.0400
  • GBPZAR 20.2300


  • Eskom announced stage 3 loadshedding for Thursday.
    • In addition, Koeberg nuclear station announced that there were multiple resignations.
    • As South Africa strains under the weight of continued rolling blackouts, developments at the Koeberg Nuclear Power Station do not inspire confidence.
    • The nuclear plant’s two units were meant to be offline for six months each this year for maintenance and refurbishment work.
    • To add to the woes, Koeberg has also seen Chief Nuclear Officer Riedewaan Bakardien resign from Eskom to join a Canadian power utility. EWN
  • Eskom CEO Andre De Ruyter has admitted that the picture still looks grim, he has vowed that teams at the power utility are working around the clock to get a handle on the crisis.
  • On the JSE, major sugar producer Tongaat-Hullett saw their shares spike 17.78%.
    • The news following an announcement that Artemis Investments, had increased its shareholding in the JSE-listed sugar producer and property company to 10%.
    • Tongaat closed at R4.77 a share, 76 cents higher than its previous closing.
    • The stock is also up 55% in the past week, following the group’s decision to abandon a controversial capital raise. Sens
  • SA motorists could possibly get relief at the pumps from the record-high fuel prices in August as the global oil price dipped below the $100-mark per barrel today.
    • The price of Brent crude oil plunged more than 7 percent on Tuesday to $99.95 per barrel after starting the day at $105 per barrel.
    • Oil prices were rattled by fears of declining demand amid the resurgence of Covid-19 outbreak in major cities in China.
    • China, the world’s the biggest importer of oil, is saw an uptick in virus cases after the discovery of a new sub-variant has driven fears of renewed lockdown restrictions. IOL


  • On Wednesday, US stock futures traded higher as investors looked ahead to a key inflation report that is expected to remain hot.
    • In regular trading on Tuesday, the Dow fell 0.62%, while the S&P 500 and Nasdaq Composite lost 0.92% and 0.95%, respectively.
  • Those moves came as investors braced for US inflation data that is expected to climb 8.8% in June from a year earlier.
    • It will be the biggest increase since 1981.
  • The Fed is widely seen hiking interest rates by another 75 basis points this month following a similar move in June.
  • Investors also await more quarterly earnings as major banks are slated to report this week.


  • The US 10YR traded at 2.97% head of today’s CPI data release.
    • Following comments from the Fed that inflation remains a threat and that the 2% level is need, the FOMC remains committed to hiking 75bps at the end of the month.
    • Sentiments echoed as the Dollar (20yr high) and the SP500 (lower), Crude oil (lower) reflects recessionary fears.
  • Across the pond, in the UK
    • Britain’s 10-year Gilt rose slightly to above 2.1%.
      • Having hit a 5-week low below 2% earlier in the week after Boris Johnson announced the end of his term as Britain’s Prime Minister.
      • Apart from the political turmoil, investors worry about a looming recession as sky-high inflation hurts household consumption.
    • The BoE warned the UK’s economic outlook has deteriorated markedly due to the impact of the war in Ukraine and told banks to ramp up capital buffers to deal with shocks.
      • On the monetary policy front, the BoE has raised rates five times since December, when it became the first major central bank to increase borrowing costs after the COVID-19 pandemic.
      • However traders have now scaled back some rate hike bets.


  • The Dow declined 192.5 to 30,981
  • The SP500 fell 35 to 3,818
  • The Nasdaq fell 107 to 11,264

Futures Trading:

  • image : Trading economics


Asian markets mixed ahead of today’s CPI data release.

  • In Japan, the Nikkei 225 rose 0.54% to close at 26,479, recouping some losses from the previous session, as investors scooped up beaten-down technology names.
    • However, traders market caution dominated sentiment as traders brace for US inflation data.
  •  In Australia, the ASX 200 edged up 0.23% to close at 6,622, as gains in the tech sector outweighed losses in energy and mining stocks.
    • Investors are also waiting  for US inflation data which is expected to notch a fresh 40yr high in June and bolster the Federal Reserve’s aggressive tightening plans.
    • Technology stocks advanced as trades looked for bargains.

Crude oil settled around $96/bl on Wednesday after falling about 8% in the previous session.

  • Traders citing a weakening demand outlook mired by recession fears, a rallying dollar and China’s resurgent Covid outbreaks.
  • Investors are gearing up for another hot US inflation reading which could bolster the Federal Reserve’s aggressive tightening plans, escalating fears of a potential recession.
  • Also weighing on oil prices, the American Petroleum Institute (API) reported that US crude stocks rose by 4.76 million barrels last week, while gasoline and distillate stocks increased by 3 million and 3.3 million barrels.
  • The inventory data showing a slowdown in demand for crude.

Gold traded $1,730/oz and remained near its lowest levels in over 9 months, as market caution dominated sentiment ahead of the release of key US inflation data.

  • In addition to a stronger-than-expected jobs report on Friday, a high inflation reading would likely confirm that the FOMC will stick to its aggressive tightening path to slowdown rising consumer prices.
    • The Fed is widely seen hiking interest rates by another 75 basis points this month following a similar move in June.
    • Gold also came under pressure from a rallying dollar as investors opted for the safe-haven currency and not bullion.

The US Dollar held steady at the 108 mark, ahead of today key US CPI report.

  • The Buck trading at 20 year highs due to the FED’s aggressive rate hike policies.
  • The central bank is widely seen hiking interest rates by another 75 basis points this month following a similar move in June.
  • The dollar also benefited from safe-haven inflows as investors looked to hedge against surging inflation and recession risks.
  • The US CPI report due later today is expected to have accelerated 8.8% in June from a year ago, which would be the biggest increase since 1981.

The Euro continued to depreciate to as low as $1.00010, edging closer toward dollar parity for the first time in 20 years.

  • The energy crisis increased the risk of recession making it more difficult for the ECB to tighten the monetary policy and as the greenback was boosted by safe-haven demand.
  • The key gas pipeline Nord Stream 1 started annual maintenance on July 11th, and flows are expected to stop for 10 days but concerns linger that supply may not return to current levels after the works.

Inflation analysis

  • Economists of the opinion that consumer prices continued to shoot higher in June, with the headline consumer price index expected to reach 8.8% year over year, according to Dow Jones.
  • However, most concur that considering the fall-off in oil prices, June’s headline CPI could be the peak of inflation for now.

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