Morning NOTE

GOOD MORNING

• USDZAR 16.0100
• EURZAR 16.8000
• GBPZAR 19.8100

SOUTH AFRICA   

• Arts and Culture Minister Nathi Mthethwa appears to be listening to the criticism over his contentious move to spend more than R20 million on a flag pole project.
  • Mthethwa said that he had taken note of the public discourse around the issue.
  • He said that the process would be reviewed.
  • He initially defended the move, though, saying that his department was entrusted with promoting social cohesion. EWN
•  The South African Weather Service on Wednesday said the country should brace for a cold and rainy few days ahead.
  • These cold weather conditions were likely to impact the already constrained power grid.
  • This as Eskom has been battling with power supply for the past 10 consecutive days.
  • The country continues to suffer from different stages of load shedding being implemented, including stage 2 from 5 pm until 10 pm on Wednesday.
  • The weather service said rainfall was expected this weekend. IOL
• There is consensus that the SARB will increase the repo rate today, with the only question being by how much.
  • SA is among several countries that have seen inflation increase due to various factors, including the war in Ukraine.
  • Stats SA said annual inflation (YOY) was recorded unchanged at 5.9% for April but this was still at the upper end of the reserve bank’s target of between 3% and 6%.
    • There has been varied opinion about whether the monetary policy committee will increase the repo rate by 25 or 50 basis points.
• Economist Dawie Roodt said despite its impact on the pockets of many South Africans, the increase in the repo rate would be beneficial in future.
  • The reserve bank, by increasing the interest rate, is taking the right steps,” he said. NEWS 24
  • “A high interest rate is much better than high inflation if it becomes entrenched in the economy, but it will be painful in the short term.”

GLOBAL MARKETS

Stocks:

• The Dow Jones ended 1165 points lower at 31490 on Wednesday, its biggest fall since June of 2020.
  • The Sell-off was led by a plunge in consumer shares after another retailer warned on rising cost pressures.
    • Target shares tumbled 25% in its worst rout since 1987 after the company missed Wall Street expectations.
      • It cited higher prices and supply bottlenecks while cutting its profit forecast due to a surge in costs.
    • Walmart stocks fell 6.8% after issuing a similar statement on Tuesday.
• Also, the S&P 500 declined 4% to 3924, the biggest drop since June 2020 and the Nasdaq lost 4.7% to 11418, the worst performance since May 5th.
• Investors worry that high inflation coupled with rising borrowing costs will severely weigh down on the growth.
• Yesterday, Fed Chair Powell said the central bank would not hesitate to keep raising interest rates until inflation returns to the 2% target.

• The yield on the US 10-year government bond fell below 2.9% after US stocks sold-off on Wednesday.
  • Traders citing concerns over rising inflation and interest rates on growth and earnings.
• The Fed raised interest rates by a half point early this month and Chair Powell said two similar moves were on the table in June and July.
  • Earlier Powell said, moving above neutral remains on the cards if it is needed to bring inflation under control. source: U.S. Department of the Treasury

• The Dow declined 1,164 to 31,490
• The SP500 declined 165 to 3,928
• The Nasdaq fell 566 to 11,418

• image : Trading economics

• Asian Stocks Fall after the rout on Wallstreet, as weak earnings reports from retailers added to concerns that high inflation would slow global growth.
  • In Japan, the Nikkei 225 Index fell 2.6% to around 26,200, reversing gains in the past two sessions, as disappointing quarterly results from major US retailers triggered fears that the economic downturn is starting to bite.
    • Wall Street plunged overnight after back-to-back quarterly reports from Target and Walmart showed that higher costs and weaker consumer demand are squeezing corporate margins
    • In Hong Kong, the Hang Seng tumbled over 2%, down for first time in five sessions; while sharp falls were also seen in Japan, Australia, and South Korea.
  • In Australia, the ASX 200 Index tumbled 1.9% to 7,046, following the sharp drop in New York. Australian retailers and consumer stocks led the decline, after the sharp losses in Target shares.
• Crude oil traded above $110/bl after tumbling 4% in the past two sessions.
  • The concerns over tight global supplies and a pending EU ban on Russian oil outweighed the prospect of a global economic slowdown highlighted by sharp equity sell-offs.
  • The EU proposed fresh sanctions against Russia that would include a total ban on oil imports from the hostile country in 6 month’s time.
  • The European Commission unveiled on Wednesday a 210 billion Euro plan for Europe to end its reliance on Russian energy by 2027. Energy News
• Gold remained weak near 4-month lows around $1,815/oz, facing pressure after the FED chair stated, the central bank was intent on using its tools to bring down multi-decade high inflation.
  • The dollar and US Treasury yields have seen increased volatility in recent sessions, but remained at elevated levels and continued to dampen bullion demand.
  • The Fed has raised its benchmark policy rate by an aggregate of 75 basis points this year
  • Also, the Fed is on track to increase it again in 50-basis point increments at each of the next two meetings in June and July. Kicto metals.
• The US dollar recovered from its lowest level in over a week to around 103.60.
  • The market pricing in the chances of an increasingly hawkish Federal Reserve stance to keep a lid on the highest inflation in decades.
  • Fed Chair Powell said the central bank would not hesitate to keep raising interest rates until inflation returns to the 2% target.
  • The greenback saw some downward pressure recently as the recent relief rally across equities dented investors’ appetite for the safe-haven currency.
  • On top of that, evidence grows that other major central banks, particularly the ECB and the Bank of England, would be forced to act more aggressively to tame record inflation. Fx NEWS

• Russia’s Defence Ministry says nearly 1,000 Ukrainian soldiers, including 80 wounded, have surrendered at the Azovstal steel plant in Mariupol since May 16.
  • Most have been sent to a pretrial detention centre, the ministry said.
• A Russian soldier accused of killing an unarmed civilian in Ukraine pleaded guilty to war crimes at a trial in Kyiv — the first such trial since the invasion began.
• NATO doesn’t expect significant gains for either side on the battlefield in Ukraine in the coming weeks.
  • The USA have sent diplomatic envoys to Turkey to start discussions.
  • Turkey continues to voice opposition to Sweden and Finland joining the alliance.

Crypto crises

• Cryptocurrency Luna crashes to $0 as UST falls further from dollar peg.
  • Luna, the cryptocurrency associated with TerraUSD, or UST, is now worth $0 as the stablecoin has dramatically lost its $1 peg.
  • The Terra network stopped processing transactions twice in 24 hours.
  • Binance, the world’s largest crypto exchange, temporarily delisted UST and Luna.
  • The sister token of controversial stablecoin TerraUSD is now basically worthless.
  • Luna plunged to $0 Friday, according to data from CoinGecko, marking a stunning collapse for a cryptocurrency that at one point was worth more than $100.
  • The demise of controversial stablecoin venture Terra has resulted in a meltdown in the crypto market, which erased billions of dollars in value in a single day.

• WORLD 525,191,538 / 6,294,926 / 494,989,822
• USA 84,692,706 / 1,028,014 / 81,438,103
• SA 3,908,020 / 100,867 / 3,726,366