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Morning NOTE

14 July 2022


The ZAR endured a volatile session ahead and after the release of record breaking US CPI.


  • The Rand traded in a 30 cents range after US CPI surprised to the upside, exceeding even the most hawkish of estimates.
    • Prices in the world’s largest economy increased by 9.1% YOY, the largest since 1981.
      • Prior to the release of the data, Risk assets rallied (with hope), that the CPI could possibly surprise lower.
  • The Rand reaching 16.9000 before spiking to a low of 17.1700 on the data release.
    • This immediately followed by a pullback to 16.8500, as stops got triggered on both sides of the aisle.
    • Inflation print all but confirming that the Fed will hike 75 basis points at the next meeting and possibly the next one as well.
  • The Bank of Canada surprised the market by hiking rates 100 basis points, as it tries to get ahead of the “inflation pandemic”.
  • There are now market fears that the Fed could do the same.
  • Adding the to the Rand’s woes were weaker than expected SA retail sales data.
    • The effect of loadshedding and fuel hikes curtailing spending in SA as well as the SARB’s aggressive monetary policy.
    • YOY Retail sales printed at 0.1% vs 1.5% expected  & MOM Retail sales printed at -1% vs +0.2% expected.
  • In addition drop in commodity prices not as supportive to the local unit as before.

On the data front :

  • 11:30 SA Gold mining  production data YOY expected -30% vs -27.8% previous
  • 11:30 SA Mining production data -10.85% YOY expected vs -14.9% previous
  • 11:30 SA Mining production data -1.7% MOM expected vs -4.3% previous
    •  ** NB: Labour strikes and Eskom continues to affect the sector


  • 14H30 : US PPI 10.7% expected YOY vs 10.8% previous.
  • 14H30 : US CORE PPI 8.1% expected YOY vs 8.3% previous.

Today :

  • This morning we opening with a weaker after the higher than expected US CPI release at 9.1% vs  +8.8% expected.
  • The ZAR opening in the middle of weeks range, with some early buying of dollars sending the local unit weaker.
    • The market on edge as we have more US inflation due this afternoon.
    • In addition, after the Bank of Canada’s shock, traders nervous of the Fed doing the same and hiking by 100bps.
  • All of this points to RISK OFF.
    • and we can expect a weaker ZAR this session. (NB: at least until we get the US PPI report)
  • USDZAR :  Expect a range 16.7600-17.1400
    • Importers 16.8900-16.7600
    • Exporters 17.0200-17.1400
  • EURZAR :  Expect a range of 16.8600-17.1800
    • Importers 16.9600-16.8600
    • Exporters 17.0600-17.1800
  • GBPZAR :  Expect a range of 19.9300-20.3350
    • Importers 20.0300-19.9300
    • Exporters 20.1800-20.3350


  • USDZAR 16.9800
  • EURZAR 17.0100
  • GBPZAR 20.1200


  • After the ESKOM wage strike that resulted in 7% gains it was just a matter of time before other government departments started to strike.
    • Step up SARS!
      • The South African Revenue Service is now dealing with a strike for the second time this year.
      • The news broke after wage negotiations deadlocked, just as the crucial July tax season started.
      • In summary : The unions want a salary increase of CPI (5%) + 7%, across the board.
      • SARS returned with a counter-offer of 1.3% after the first strike action in May.
      • It was then announced the Public Servants Association (PSA) and the National Education, Health and Allied Workers’ Union (Nehawu) embarked on industrial action. EWN
  • AfriForum has taken legal against the Department of Transport and the Road Traffic Management Corporation (RTMC).
    • The action is against the requirement for motorists to renew their licence cards every five years.
    • The lobby group seeks to extend the validity period to 10 years.
    • Afriforum cited the government’s systematic failures that make it difficult for drivers to renew their licence cards. IOL
  • SA airlines crises continues following Comair, SA Express had its licenses cancelled.
    • The news broke after SA international Air Services Council were informed that the liquidators were trying to sell the airline’s licenses as intangible assets.
      • In a letter dated 8 July 2022 and seen by Fin24.
    • SAX went into business rescue in February 2020. It was placed in provisional liquidation since April 2020 and has not operated since.
    • Repeated attempts since then to conclude a sale of the airline had failed and in March this year the liquidators announced the re-opening of the bidding process. Fin24
  • Old mutual is likely to appeal a high court ruling ordering it to pay R1.7bn to investors of the bankrupted Fidentia group.
    • Old Mutual transferred a trust to Fidentia, which proceed to loot its investments.
      • The judge found there was a sufficient basis to hold Old Mutual liable.
    • Old Mutual will appeal a ruling by the South Gauteng High Court in Johannesburg that it must pay to a group of investors in Fidentia. News24


  • US stock futures fell in Asian trade on Thursday after June inflation data came in hotter than expected.
  • In regular trading on Wednesday, the major averages finished lower.
  • Traders reacted  to the latest inflation reading, with the Dow losing 0.67%, while the S&P 500 and Nasdaq Composite fell 0.45% and 0.15%, respectively.
    • Atlanta Fed President Raphael Bostic said “everything is in play” when asked by reporters if a full percentage point hike was on the table.
    • Cleveland Fed President Loretta Mester said there was “no reason” for raising rates by less than 75 basis points.
  • Today, the earnings season continues Thursday with JPMorgan and Morgan Stanley set to report pre-market.


  • The 10-year yield declined to the 2.9% level as investors continued to assess the risks of a recession following the release of higher than expected inflation in the US.
    • The annual increase of the CPI rose to 9.1% in June, the highest since 1981
    • It added pressure on the FOMC  to stick to aggressive interest rate hikes to lower demand in the American economy.
      • The yield curve inversion continued as the gap between 2 and 10-year bond yields widened to 20 basis points, the largest since at least March 2010.
      • This closely-watched part of the US yield curve, viewed by many as a warning for economic contraction, has been inverted in the last several trading sessions.

    • The annual inflation rate in the US (CPI)  accelerated to 9.1% in June of 2022.
    • It was  the highest since November of 1981, and up from 8.6% in May.
    • It was also above market forecasts of 8.8%.
      •  Energy prices rose 41.6%, the most since April 1980, boosted by gasoline (59.9%, the largest increase since March 1980).
      • Food costs surged 10.4%, the most since February 1981, with food at home jumping 12.2%, the most since April 1979.
      • Core CPI which excludes food and energy increased 5.9%, slightly below 6% in May, but above forecasts of 5.7%. source: U.S. Bureau of labour Statistics


  • The Dow  declined 208 points to 30,772
  • The SP500 fell  17 points to 3,801.
  • The Nasdaq fell 17.15 points to 11,247

Futures Trading:

  • image : Trading economics


  • Asian shares mixed and traded higher following a rebound in stocks following the devastating US CPI report. Earlier in New York US CPI printed at 9.1% YoY.
    • In Japan, the Nikkei 225 rose 0.8% to around 26,700, extending gains in the previous session.
      • Japanese traders said, following the release of US inflation data, the Yen got creamed and dropped to a fresh 24-year low (¥ 138/$) .
        • This resulted in Japanese shares gaining (for exports).
        • Technology stocks led the advance, with strong gains from SoftBank Group (1.5%).
      • The BOJ refusing to hike rates and remains focussed on expansionary monetary policy, diverging from the US Fed and in turn causing a YEN meltdown.
    • In Australia, the ASX 200 Index rose 0.44% to close at 6,651 on Thursday.
      • The index extending gains, as mining and energy stocks staged a relief rally following the release of another hot US inflation reading.
      • Investors also digested domestic data showing Australia’s jobless rate fell to 3.5% in June, well below forecasts of 3.8% and the lowest since August 1974.
      • The rebound in mining stocks were led by BHP Group (1.5%).

Crude oil

  • WTI crude declined to trade near $96/bl, as higher than expected US CPI raised the prospect of more aggressive Federal Reserve tightening.
    • The data and potential rate hikes, escalating fears of a demand-sapping recession and overshadowing concerns over tight supply.
      • Markets are nervous and some are talking about the possibility of a supersized 100 basis point rate hike.
      • Also data showed China’s daily crude imports in June fell to their lowest since July 2018, as refiners anticipated a hit from lockdown measures.
  • Joe Biden is set to attend a summit of Gulf allies in Saudi Arabia on Friday where he is expected to call for increased oil production amid efforts to bring down prices.
    • Citibank had earlier called for oil prices to reach $60/bl if a recession hits. Source : Energy news


  • Bullion traded lower to $1,720/oz, erasing gains from the previous session as US inflation data surprised markets to the upside.
    • The data likely to add on pressure on the FOMC to respond even more aggressively.
    • US CPI surged 9.1% in June 2022, hitting its highest level since 1981 and exceeding expectations for an 8.8% increase.
  • Markets worried about the possibility of a supersized 100 basis point rate hike from the Fed this month.
  • Gold also faced pressure from a strong dollar as investors opted for the safe-haven currency in hedging against rising prices and heightened recession risks. Source:  Kitco metals

The Dollar

  • The US dollar index climbed to 108.4 on Thursday, remaining close to a fresh 20-year high.
  • Higher than expected CPI underpinning expectations of even more aggressive Fed policy tightening and safe-haven inflows spurred by recession fears.
    • The annual US inflation rate in the US jumped to 9.1% in June 2022.
    • It was the highest level since 1981 and exceeding expectations for an 8.8% increase.
    • Atlanta Fed President Raphael Bostic said “everything is in play” when asked by reporters if a full percentage point hike was on the table.
    • Also, Cleveland Fed President Loretta Mester said there was “no reason” for raising rates by less than 75 basis points.
  • Analysts also pointed out that surging inflation and faster monetary tightening increase the likelihood of a recession, a prospect that appears to be supportive of the dollar.

The Looney

  • The Canadian dollar gained to C$1.3000/ USD, and in turn  rebounding from the 19-month low of 1.31 touched earlier in the month.
    • The rally  after the Bank of Canada raised its benchmark rate by more than expected.
  • The Bank of Canada hiked the target for its overnight rate by 100 bps  to 2.5%, a move not seen since 1998.
    • It surprised traders and analysts who expected a 75bps hike , while indicating that it will hike interest rates further in the coming meeting to curb rising inflation.
    • At the same time, the latest labour data pointed to a record low unemployment rate.   Source : Reuters

The Crypto winter

  • Cryptocurrencies have thus far lost more than $2 trillion in value since the height of a massive rally in 2021.
  • Bitcoin, the world’s biggest digital coin, is off 70% from a November all-time high of nearly $69,000.
    • That’s resulted in many experts warning of a prolonged bear market known as “crypto winter.”
      • The last such event occurred between 2017 and 2018.
      • “The 2017 crash was largely due to the burst of a hype bubble,” analysts told Bloomberg.
    • But the current crash began earlier this year as a result of macroeconomic factors, that included rampant inflation leading to rapid Fed rate hikes.
    • These factors weren’t present in the last cycle.
  • Bitcoin and the cryptocurrency market more broadly has been trading in a closely correlated fashion to other risk assets, in particular stocks.
    • Thus tying itself to the Liquidity trade. Source : CNBC

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