Morning NOTE

GOOD MORNING

The ZAR continued to lose ground against a rampant US dollar after more hawkish comments from Fed governors.

• USDZAR 16.9200
• EURZAR 17.0400
• GBPZAR 20.1400

SOUTH AFRICA   

• **HIGH RISK EVENT

  • The future of Finance Minister Enoch Godongwana hangs in the balance amid charges of sexual assault against him.
    • Ahead of the SA MTBPS there remains a risk of him being replaced.
    • In addition, Detectives have asked Godongwana for a statement after a case of sexual assault was opened against him.
    • Godongwana said he spoke to detectives who asked him for his version of events.
    • He also confirmed he met with the ANC’s integrity committee on Wednesday. News24
• Deputy President David Mabuza was back in Parliament on Thursday where he was again quizzed about the struggling power utility and the energy crisis.
  • Pushing back against the privatisation of Eskom, Mabuza, said the government has al the tools to get ESKOM functioning again.
  • Mabuza added that the country needed additional generation capacity and external energy could be brought in from outside of Eskom in the meantime. EWN
• Standard Bank Group (SBG), Africa’s largest bank by assets, on Friday reported record headline earnings of R15.3 billion for the six months to 30 June 2022.
  • It was a surge of 33% on the comparative 2021 half-year.
  • Headline earnings per ordinary share was up 30%, to 936.2 cents, compared to 721.4c for the prior period.
  • The bank also rewarded shareholders, with an interim dividend of 515 cents per share, at a pay-out ratio of 55%. Moneyweb

GLOBAL MARKETS

Stocks:

• Equity markets surprisingly resilient in the face of ultra-hawkish Fed rhetoric.
  • So far for the week, the major US indices i.e. the DOW and SP500, both trading in positive territory.
    • However, the Nasdaq is lower as investors continue worry about the expectation that the Federal Reserve will tighten further.
  • The fears of 75 bps making the rounds after Bullard’s comments.
• This morning stock futures all lower as we approach the start of the week’s final session.

Bonds:

• The US 10YT trading at 2.92% yield on the back of hawkish Fed statements as markets look to price in 75bps.
  • This is a different picture at the start of the month of August where the yields of the benchmark bond was set at 2.55%.
  • Global inflation also remaining sticky, and this risk likely to add fuel to the fire.
    • German, UK and even Japan (for years a deflationary basket case), has also printed higher than expected CPI.
• In addition to the Fed meeting at the end of September, the ECB is also expected to hike 50bps.

YESTERDAY

• The Dow added 18 points to 33,999
• The SP500 added 9.7 points to 4,283
• The Nasdaq gained 27 points to 12,965

Futures Trading:

• image : Trading economics

OVERNIGHT HEADLINES

• Asian markets lower this morning following rate hike fears in the USA.
  • In Japan, the Nikkei 225 shed 0.04% to close at 28,930. Japanese traders on edge after a hot domestic inflation reading.
    • The data challenging the BOJ’s firm commitment in keeping interest rates ultra-low.
    • Japan’s headline inflation rose 2.6% YoY in July from 2.4% in June, accelerating at the fastest pace since April 2014.
  • In China, the Shanghai index fell 0.2% to around 3,270, extending losses from the previous session.
    • Traders citing China’s shaky economy reflected by weaker-than-expected domestic data and slow appetite for credit.
    • Mega banks, Nomura and Goldman Sachs downgraded their forecasts for Chinese GDP on Thursday.
    • This poses a challenge to the PBoC which is pressured to take more easing steps.
    • The PBOC is now expected to cut rates on Monday after unexpectedly slashing two key rates earlier this week. Bloomberg
• Crude oil continues to be gripped by demand fears with both the US WTI contract and North Sea Brent crude price below $100/bl.
  • Recessionary worries and the impact on demand causing a slide in prices.
  • The US Fed remains steadfast on raising interest rates further to bring inflation substantially lower.
  • On the supply side, Russia sees revenue from energy exports jumping 38% this year due in part to higher oil export volumes.
  • In addition, talks of a revival of the Iranian nuclear deal, also allowing for more supply and likely to pressure prices further. Reuters.
• Gold just can’t catch a break and prices continues to slide to $1750/oz.
  • Prices under pressure due to the US Fed’s commitment to keep raising interest rates to bring down inflation.
  • The US central bank’s hawkish stance has pushed up the dollar to a one-month high against major rivals.
  • The greenback rallying on the back of rising rates making gold more expensive for buyers than holding other currencies. Kitco metals
• The US dollar index broke above the 107 mark, a level not seen in a month, as investors reassessed the outlook for monetary policy.
  • This following fresh hawkish remarks from several Fed policymakers.
  • St Louis Fed President James Bullard echoed the Fed’s intention to tighter monetary policy, leaning towards favouring another 75 bps hike in September.
  • San Francisco Federal Reserve President Mary Daly highlighted the need to push interest rates to the restrictive territory to bring inflation down to its 2% target.
  • Market moves came after minutes from the last Federal Reserve meeting signalled that a dovish pivot is unlikely until such an aggressive tightening would drag on growth. Fx news

• The Euro traded below $1.0100, and just  above the key $1 dollar parity level as investors balance the ECB policy tightening path against the region’s economic outlook.
  • The ECB is seen raising rates by 50 bps in September, following a similar move in July to tame soaring inflation.
  • However, the region’s outlook is of concern due to the energy crisis triggered by reduced supplies from Russia.  Fx news