Morning NOTE

GOOD MORNING

The ZAR weakened on the back of a resurgent Dollar as Risk currencies retreated on the back of renewed global recession concerns.

• USDZAR 16.4200
• EURZAR 16.6800
• GBPZAR 19.7900

SOUTH AFRICA   

• After a few years of constant medical aid scheme rates, due to Covid-19, Discovery announced that contributions for 2022 would increase by 7.9%, but that this would only be effective from 1 May.
  • It said this “was to maintain short-term affordability for all our members”.
  • However data suggests the priciest plans continues to lose members .
  • The six top-end medical aid plans offered by Discovery Health Medical Scheme (DHMS) continue to lose members, with a 5% decline between the end of 2020 and the end of 2021. Moneyweb
• The state-owned Central Energy Fund (CEF) has welcomed the Competition Tribunal’s unconditional approval of its proposed transaction by subsidiary the Strategic Fuel Fund (SFF) .
  • The deal allows for the SFF to acquire a 50% interest in the assets of BP Southern Africa’s Cape Town terminal.
    • The transaction will see joint ownership and control of the terminal, and was given the green light on 3 August.
  • Godfrey Moagi, CEO of the SFF, said the merger will pave the way for the fuel fund to diversify its revenue stream in line with its strategic goals. MoneyWeb
• The AA forecasting a drop in fuel in prices .
  • The Automobile Association has forecast significant decreases to fuel prices across the board.
  • This is based on current unaudited mid-month data from the Central Energy Fund.
  • According to the data, 95 octane is expected to drop by around R2.60 a litre while 93 may decrease by around R2.45.
  • The wholesale price of diesel is expected to decrease by around R2.30 and the price of illuminating paraffin by almost R2.00 a litre.
  • The Automobile Association said the scenario is different this time, as there are no refunds to the general fuel levy, as happened previously. EWN

GLOBAL MARKETS

Stocks:

• On Monday, the major US indices all rallied investors shrugged off dismal economic data from China and the US and remained focused on easing price pressures.
  • Investors now look ahead to earnings reports from major retailers, with Home Depot and Walmart scheduled for Tuesday.
  • Markets also await minutes of the last Federal Reserve meeting due on Wednesday.
• US stock futures drifted lower on Tuesday after the major averages posted gains in the last regular session.
  • Investors are waiting for retail earnings that could offer clues about consumer activity and the overall health of the US economy.
  • This morning, on the back of light profit taking, Futures contracts tied to the three major indexes drifted flat to slightly negative.

Bonds:

• The US 10-year yield traded below the 2.80% level, easing further from a multi-week peak of 2.91 as investors rushed to the safety of bonds due to lingering concerns over a global economic slowdown.
• A batch of economic releases from China, including disappointing industrial production and retail sales figures, raised further concerns about the health of the world’s second-largest economy.
• Federal Reserve policymakers have pointed out that a dovish pivot is unlikely despite signs that inflation could be peaking, added to concerns about a Fed-induced recession.

YESTERDAY

• The Dow added 151 to 33,912
• The SP500 add 16.99 to 4,297
• The Nasdaq  added 80 to 13,128

Futures Trading:

• image : Trading economics

OVERNIGHT HEADLINES

• Asian markets mixed after a strong showing on Wall Street as investors remain cautious ahead of tomorrows Fed minutes as well as lingering global recessionary concerns.
  • In Japan the Nikkei 225 declined 0.01% to close at 28,869. Investors taking a breather from a strong rally, dragged lower by losses in energy and shipping stocks.
    • Weak economic data from China and the US also reignited concerns about a global recession, keeping sentiment in check.
    • Energy stocks declined as oil sustained sharp losses.
  • In Australia, the index gained 0.58% to 7,105 and in turn closing at its highest level in over 2 months.
    • BHP reporting a 26% increase in earnings, leading the charge.
    • Stocks in Australia’s largest miner jumping more than 4%. Reuters
• Crude oil declined with the US WTI contract trading below $90/bl.
  • Traders citing, demand side concerns, that resurfaced and continues to haunt the oil market.
    • The fears sending prices lower.
    • Crude oil prices reached pre-war levels after fears of recession resurfaced as demand outlook remained unclear, especially for the US and Europe.
    • The report published by the Kuwait-based Kamco Invest in its Oil Market Monthly Report August-2022.
  • With prices sliding for the third straight session to near 6-month lows, traders are citing weak US and Chinese economic data and a potential global downturn that could heavily impact energy demand.
    • China’s factory and retail activity slowed unexpectedly in July, prompting the central bank to cut key lending rates to shore up demand.
    • In the US, the New York Empire State Manufacturing Index posted its second largest monthly decline ever in August.
    • The prospect for increased Iranian oil exports also weighed on prices as Iran responded to the EU’s proposal for reviving the 2015 nuclear deal source : Oman Energy News
• Gold prices traded at $1,780/oz on Tuesday after falling 1.3% in the previous session.
  • The yellow metal weighed down by expectations that the Federal Reserve will continue to aggressively raise interest rates despite signs of easing inflation and slowing growth.
  • In addition, hedge funds are reluctant to make major bullish bets after suffering from a short squeeze after the Dollar rebounded.
    • Some analysts also note that the latest data from the Commodity Futures Trading Commission shows that money managers are reluctant to make any significant bullish bets.
  • “Despite the narrative suggesting that inflation will be under control soon with rates peaking early and at relatively low levels, there were very few long positions taken out by specs.” Kitco metals
• The Euro, declined to below  $1.02 in the third week of August, as increasing concerns over an economic slowdown.
  • The Dollar hammering the single currency after hawkish remarks by some Fed officials pushed the Buck up.
  • The common currency is trading close to parity since early July, as there are increasing signs the Euro Area economy is heading into a recession.
  • The Euro also suffering at a time where inflation continues to break record highs, the energy crisis is far from over, and the ECB is set to continue to increase borrowing costs.
• The Dollar theme remains as the Greenback remains well supported on the back of contractionary monetary policy.
  • The Dollar also benefited from expectations that the Federal Reserve will tighten monetary settings further despite signs of easing inflation and slowing growth in the US.
  • In the latest central bank commentary, Richmond Fed Bank President Thomas Barkin said Friday that the Fed will have to continue to move rates into “restrictive territory”.
  • This will happen until he sees inflation sustainably falling within the target range for a significant period.