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Morning NOTE

15 July 2022


The ZAR weakened throughout yesterday’s session , exacerbated by another high US PPI print.


  • The Rand reached a weakest level of 17.3000, following the release of a higher than expected US PPI print.
    • The data all but confirming that inflation remains stubbornly high and that the Fed’s hand is being forced to act.
  • Traders and investors openly discussing  the possibility of a 100bps hike , following a similar action by the Bank of Canada the day before.
    • Atlanta Fed President , Bostic, when asked about a 100bps hike , replied “ nothing is off the table”.
    • The answer sending markets in freefall as the SP500 declined to 3720.
  • Later in the session however, JP Morgan reported a decline of 28% in Revenue, on the back of bad debts, forcing the mega bank to increase provisions.
    • If we needed any sign of the head winds the US economy faces ,then this was it.
    • This confirmed the previous quarters’ negative GDP print that the US economy is headed for a recession.
  • On the data front US PPI printed 11.3% YoY vs 10.7% expected and previous 10.9%
    • However, weekly jobless claims rose to 244k vs 235k expected.
    • It was the highest since November 2021 as more companies announce job cuts amid economic uncertainty.
  • In addition, The gap between 2 and 10-year bond yields widened by almost 30 basis points, the largest in over two decades.
    • This closely-watched part of the US yield curve, viewed as a proxy for recession risks, has been inverted in the last several trading session.
  • Locally, SA mining and gold production showed a continued contraction or decline in the sector, as strikes and Eskom loadshedding hampers performance.
    • Gold was down 28.3% YOY, 4th consecutive month of declining output.
    • Mining was down 7.8% YOY.
  • Data today : Nothing out of SA but a full US calendar.

    • 14h30 : US RETAIL SALES (JUNE) , Expected +0.8% vs -0.3% previous
    • 14h45 : Atlanta Fed president Bostic speech.
    • 15h15 : US industrial production, expected 4.8% YOY vs 5.4% previous
    • 16h00 : Michigan Consumer sentiment, with 49.9 expected vs 50 previous
  • Today :
    • This morning we opening with a stronger, bias after another topsy turvy session.
    • The high PPI sent the ZAR weaker, but the poor economic data that followed, allowed for a recovery of 1.06 % .
      • The ZAR opening in the middle of yesterday’s range.
      • As we head into the weekend, there could be some Dollar profit -taking as USD longs have had a good week.
    • Risk : Bostic talking, and any mention of 100bps, could see the unit weaken once again.
    • Stock futures a trading off its lows, and unless it declines sharply it is highly unlikely the ZAR will go into free-fall today.
  • NB: Next week Thursday we have the ECB (+25bps) as well as SARB (+50bps) expected – This is likely to be ZAR supportive.
  • USDZAR :  Expect a range 17.0400-17.2600
    • Importers 17.1100-17.0400
    • Exporters 17.1900-17.2400
  • EURZAR :  Expect a range of 17.0700-17.3700
    • Importers 17.1300-17.0700
    • Exporters 17.2500-17.3700
  • GBPZAR :  Expect a range of 20.1800-20.3800
    • Importers 20.2400-20.1800
    • Exporters 20.3350-20.3800


  • USDZAR 17.1500
  • EURZAR 17.1900
  • GBPZAR 20.2800


  • The EFF has called for an unprecedented national shutdown to demand the country back from what it calls an incompetent and directionless government.
    • EFF leader  Malema said the party, together with other organisations, will make demands to end load shedding, the reduction of fuel prices to 2018 rates.
    • They also called for the immediate arrest of Ramaphosa over the Phala Phala farm saga. IOL
  • The competition commission gave the green light for Amazon to set up shop in SA, stating there is no evidence that Naspers owned Takealot would be at risk
    • Amazon is currently embarking on a large expansion to set up warehousing and distribution in SA.
    • The commission added, even if that were to change, it would take a considerable period to build capacity and roll out and is still unlikely to dislodge the current leader.
    • This is evident from many markets where Amazon was a relative new-comer unlike the US. EWN
  • ESKOM continues with rolling loadshedding.
  • Next week : the SARB expected to hike rates by 50 bps.
  • Mercedes-Benz South Africa (MBSA) is opposed to the government subsidising electric vehicles (EVs) to make them more affordable.
    • MBSA  believes there should be parity between the import duties imposed on internal combustion engine (ICE) vehicles and EVs.
    • MBSA added the import duty on ICE vehicles is currently at 18% and that needs to also apply to EVs, where an import duty of 25% is currently applicable. Moneweb


  • US stock futures rose in Asian trade on Friday as investors await more bank earnings reports, with Wells Fargo and Citigroup set to release quarterly results later in the global day.
    • In regular trading on Thursday, the Dow and S&P 500 fell 0.46% and 0.3%, respectively, while the Nasdaq added 0.03%.
      • The moves came after disappointing earnings reports from JPMorgan Chase and Morgan Stanley.
    • Analysts warning of downside risks this earnings season given the challenging macro environment.
    • Investors also continued to assess the potential for even tighter monetary conditions against the backdrop of surging inflation and heightened recessionary risks.
  • Traders remain fearful of a 100 bps Fed hike at the next FOMC.


  • The 10 year, consolidated around 3% as investors assessed the outlook for tightening monetary policy after a hotter-than-expected US inflation reading.
  • The US CPI rose to 9.1% in June, the highest since 1981, boosting bets on a possible 100 basis point rate rise by the FOMC, later this month.
  • However recession talk growing stronger as the gap between 2 and 10-year bond yields widened by almost 30 basis points, the largest in over two decades.
  • This closely-watched part of the US yield curve, viewed as a proxy for recession risks, has been inverted in the last several trading sessions.


  • The Dow fell 142 points to 30,630
  • The SP500 declined 11 to 3,790
  • The Nasdaq  added 3 points to 11,251

Futures Trading:

  • image : Trading economics


  • Asian markets higher on the back of a late rally on Wallstreet.

    • In Japan, the Nikkei 225 0.2% to 26,700, supported by gains in the retail and technology sectors.
      • Investors also continued to assess the impact of a rapidly declining yen which has pushed up import costs and weigh on consumer spending.
    • In Australia, the ASX 200 Index fell 1.5% to around 6,550, as mega miners tumbled on weaker iron ore prices.
      • Traders citing fears of a global recession and demand slowdown in top importer China.
      • Investors also continued to assess the potential for even tighter monetary conditions globally as central banks ramp up their battle against surging inflation.
      • Losses among iron ore miners were led by BHP Group (-4%), Rio Tinto (-4%) . TE
  • Crude oil recovered slightly, for the US WTI benchmark to settle around the $96/bl level.
    • Prices rebounding from February lows as investors continued to assess tight supplies against the backdrop of low demand and a surging dollar.
      • Oil prices remain pressured by fears of an incoming economic slowdown.
      • Hotter than expected inflation figures in the US raised the odds the Fed will have to raise rates fast.
        • Traders increasingly betting on a 100bps hike later this month.
    • At the same time, demand concerns resurfaced out of China, due to a highly infectious Omicron subvariant, causing fears of a new mass lockdown.
    • Supporting prices were, prolonged warnings that OPEC countries are near maximum capacity continued to be a point of concern regarding the long-term supply of energy. Energy news
  • Gold prices below $1710/oz hitting levels not seen since April of 2021.
    • Prices pressured by a rising dollar as investors increasingly bet the Fed will deliver a 100bps interest rate hike later this month.
    • The move needed to curb soaring consumer prices.
    • The Dollar continues to trade at 20-year highs and Treasury yields remain elevated.
    • The buck supported by recent inflation and job growth data pointing to ongoing price pressures and a resilient labour market in the US.
    • On the other hand, concerns over recession and stubbornly high inflation prevented the bullion to fall further.
  • The Dollar jumped above 109, to set a fresh 20-year high, on the back of  increasing bets the Fed will deliver a 100bps rate hike later this month.
    • It would be the largest increase since the central bank started directly using overnight interest rates to conduct monetary policy in the early 1990s.
    • Fresh data showed both consumer and producer inflation continued to accelerate in June, while the NFP report pointed to a tight labour market.
    • The DXY is up more than 13% this year with the Euro hitting parity for the first time in 20 years and the yen trading above 139 for the first time since 1998.

Commodities Slump?

  • The CRB commodities index pointing to a slowdown already on the way.
  • The index reached a peak of 350 on 9 June 22, and now trades at 291 . down 16.85%
  • The index represents a basket of all the major global commodities with energy the last component.

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