Morning NOTE

GOOD MORNING

The ZAR consolidated around the R16.5000/$ level as traders wait for new information to drive direction, likely the  KEY NFP on Friday .

• USDZAR 16.5300
• EURZAR 16.9700
• GBPZAR 20.2400

SOUTH AFRICA   

• In big thumbs up for renewable energy and Eskom’s continued failure to keep the lights on, the City of Cape announced a project to buy excess electricity from generating customers.
  • In the past, small-scale embedded generation (SSEG) customers were compensated through credits on their municipal bills – now they will be paid cash.
  • These customers will also be permitted to sell more electricity to the City.
  • The idea is to create an incentives programme to generate more electricity.  Moneyweb
• Finance Minister Enoch Godongwana, said Eskom’s debt needs to be dealt with as it poses a risk to the state.
  • The minister said that Eskom had not asked for money yet but the utility’s debt was unsustainable
  • He added, “If the debt remains unsustainable, it poses a sovereign risk.  EWN
• Eskom has awarded contracts for battery energy storage to two successful bidders.
  • It will help bridge the gap between supply and demand when the electricity grid is under pressure.
  • The power utility said the contract is for the design, supply and installation as well as operating and maintenance for a five-year period.
    • Battery storage capacity is required to supplement available energy, particularly for evening peak usage when electricity demand climbs.
• British Airways has cancelled its franchise agreement with Comair.
  • The agreement had a cancellation trigger brought about by the provisional liquidation of Comair, provisional liquidator Cloete Murray confirmed on Monday.
  • Comair operated domestic and regional British Airways flights in southern Africa as part of the franchise agreement.
  • British Airways is now looking for a new partner in the SA market. News 24

GLOBAL MARKETS

Stocks:

• US stock futures drifted lower on Tuesday after Wall Street kicked off the new month on a downbeat note.
  • Futures contracts tied to the three major indexes drifted flat to negative.
  • In regular trading on Monday, the Dow declined 0.14%, the S&P 500 lost 0.28% and the Nasdaq Composite fell 0.18%.
• Markets now await the July nonfarm payrolls report on Friday and more earning reports on Tuesday from AMD, Caterpillar and Paypal, among others.
  • Inflation remains a concern especially against a back drop of negative economic growth.
• In addition, geopolitical tensions between the US and China.
  • US House Speaker Nancy Pelosi will allegedly visit Taiwan today and China has warned of “serious consequences” if the trip goes ahead.
  • Meanwhile, concerns about the strength of the global economy linger and the earnings season continues.

Bonds:

• The US 10YT declined to 2.55%.
  • It was a level not seen since April, as investors continued to pile into safe-haven assets.
  • Traders citing persistent fears that an aggressive tightening from major central banks will eventually tip leading economies into a recession.
  • The FED, the world’s most influential central bank, is expected to raise its key rate to a high of around 3.25% by year-end to tame runaway inflation.
• However, recent signals of slowing economic activity, including disappointing GDP figures last week, supported a view that the Fed could moderate the pace of the rate increases.

YESTERDAY

• The Dow declined 46 points to 32,798
• The SP500 fell 11 points to 4,118
• The Nasdaq  fell 21 points to 12,368

Futures Trading:

• image : Trading economics

OVERNIGHT HEADLINES

• Asian markets lower across the region ahead of US house speaker Nancy Pelosi’s visit to Taiwan, despite China’s objections.
  • In Japan, the Nikkei 225 dropped 1.42% to 27,595 retreating from two-month closing highs.
    • The exchange reporting all sectors traded in negative territory as a stronger Yen, mixed corporate earnings and the risk of a global recession dented sentiment.
    • Investors were also kept on edge by fears of an escalation in Sino-US tensions as US House Speaker Nancy Pelosi is set to visit Taiwan despite objections from China.
  • In China, the Shanghai Composite fell 3% to 3,162, hitting its lowest levels in about two months.
    • High-growth technology and new energy stocks led the decline, with sharp losses from East. TE
    • Investor sentiment has also been dampened by the risk of a global recession as weak manufacturing data in major economies highlighted the darkening global economic outlook.
    • Traders citing as growing tensions between China and the US ahead of US House Speaker Nancy Pelosi’s expected visit to Taiwan sparked a broad sell-off in Asia.
• Crude oil WTI prices slipped further toward $93 per barrel on Tuesday after tumbling almost 5% in the previous session.
  • Traders referring to weak manufacturing data in major economies highlighted the darkening global economic outlook.
    • JPM Global Manufacturing PMI softened in July, weighed down by declining output and new orders in developed markets such as the US, the Euro area, Japan and the UK.
      • In contrast emerging markets saw mixed results.
  • Fears that a global slowdown will hurt demand have gripped commodity markets in the past two months.
    • Currently, oil prices down more than 20% from the June high.
  • On the supply side, markets await the outcome of an OPEC+ meeting on Wednesday where it is likely to stick to its policy of modest supply increases, keeping the global supply tight.
    • For now Demand concerns outweighing tight supply. ENERGY NEWS
• Gold prices continued its recent strong performance on the back of a falling US Dollar, under pressure from declining yields.
  • The yellow metal advancing to above $1770/oz.
    • Bullion hovering at its highest levels in four weeks, as a falling Dollar and Treasury yields supported bullion demand.
    • Recent weakness in US economic data gave rise to speculations that the Federal Reserve may raise interest rates less aggressively in the coming months,
    • The move pressuring the Dollar and US yields while driving gold prices higher.
      • This trend is expected to continue throughout August as more data out of the US continue to indicate an economic slowdown.
    • Geo-political tensions also on the rise, ahead of US House Speaker Nancy Pelosi’s visit to Taiwan also drove safe-haven demand for gold. KITCO METALS
• The US dollar
  • The dollar traded near 105, hovering at its lowest levels in four weeks.
  • The increasing risk of US recession bolstered the case for a less aggressive monetary tightening from the Federal Reserve in the coming months.
  • The latest US GDP and manufacturing activity data signalled a weakening economy, while the monthly jobs report due on Friday is expected to show that the improvement in the jobs market is moderating.
    • Last week, the US central bank raised its policy rate by 75 basis points in a widely expected move.
    • Powell stating future policy decisions would be based on incoming data. Bloomberg
• The YEN
  • The Japanese yen appreciated past 131 against the Dollar, hitting its highest levels in two months.
  • Yen traders citing soft US economic data and a weakening growth outlook, all but  supported expectations that the Federal Reserve will need to slow down the pace of future interest rate hikes.
  • Declining factory activity in other major economies and rising tensions between the US and China ahead of US House Speaker Nancy Pelosi’s visit to Taiwan also drove safe-haven demand for the yen.
  • Moreover, several Bank of Japan officials said recently that the central bank needed an exit strategy from its massive stimulus.
  • The move likely to support the currency from the land of the rising sun. Reuters