Morning NOTE

GOOD MORNING

The ZAR weakened after a poor CPI data release  ahead of today’s SARB MPC meeting.

• USDZAR 17.1300
• EURZAR 17.5100
• GBPZAR 20.54000

SOUTH AFRICA   

• All focus on the SARB today.
  • Economists debating, a Repo rate hike: 75bps or 50bps?
  • A three-quarter percentage point hike to 5.5% will mean the sharpest increase since 2002.
  • With SA CPI coming in at 7.4% for June – 1.4 percentage points above the top end of the SARB’s target (6%),  and hitting a 13-year high.
    • Some feel the central bank may have no option but to hike the repo rate by 75 basis points (bps) on Thursday.
  • This would be the sharpest hike in almost two decades.
  • The last time the SARB  hiked by 75bps was in September 2002. Moneyweb
• President Cyril Ramaphosa is facing renewed pressure to take action against underperforming ministers in his Cabinet.
  • The country is currently facing many challenges including corruption, looting and the devastating electricity crisis, which is costing the country billions of Rands.
  • CR’s refusal to act, has critics saying, he is delaying action as it’s an ANC elective year and that it would make him vulnerable. EWN

GLOBAL MARKETS

Stocks:

• In regular trading on Wednesday, the tech-heavy Nasdaq Composite rallied 1.58%, the S&P 500 gained 0.59% and the Dow added 0.15%.
  • All three major averages hit their highest levels in more than a month as extreme negative sentiment paved the way for bulls to step in this month and scoop up beaten down names.
  • Also, Tesla rose 1.5% in choppy trade after the EV maker reported stronger-than-expected earnings but shrinking automotive gross margins.
  • Alcoa and CSX also jumped 6.1% and 3.4%, respectively, on an earnings beat
• This morning, US stock futures eased on Thursday after a technology-led rally in the previous session, while investors continued to digest more corporate earnings results.
  • Dow and S&P 500 futures each fell about 0.2%, while Nasdaq 100 futures lost 0.3%.

Bonds:

• The yield on the 10-year edged up above 3%, as investors continued to weigh the outlook of tighter monetary policy.
  • Last Friday, Fed Governors Bostic, Waller as well and St Louis Fed Governor James Bullard said they favoured a 75 bps interest rate increase, rather than the 100 bps move.
• At the same time, recent economic data showed the economy remains robust, despite strong inflation and rising interest rates.
• Fed policymakers enter a “blackout” period this week before the FOMC meeting on July 26th and 27th. Focus this week will be on corporate earnings and housing market indicators.

YESTERDAY

• The Dow gained 47 points to 31,874
• The SP500 gained 23 points to 3,959
• The Nasdaq  gained 184 to 11,897

Futures Trading:

• image : Trading economics

OVERNIGHT HEADLINES

• Asian markets tracking higher this morning after another positive session on Wallstreet
  • In Japan, the  gained 0.36% to close at 27,780 and in turned closed at its highest levels in over a month.
    • The Bank of Japan maintained ultra-low interest rates and signalled its commitment to keep policies accommodative despite a global shift toward tighter monetary settings.
    • Japanese shares also tracked overnight gains on Wall Street as extreme negative sentiment paved the way for bulls to step in this month and scoop up beaten down names.
  • In Australia, the  ASX 200 Index climbed 0.52% to 6,794 on Thursday, closing at its highest level in over a month, as gains in the technology sector outweighed losses in commodity-linked stocks.
    • Australian technology shares rallied following strong overnight gains on the Nasdaq.
    • However, energy and mining stocks declined on weaker commodity prices, with notable losses from Rio Tinto (-2%). TE
• Crude oil prices declined, ending its recent rally.
  • WTI trading below $100/bl and settling around the $99/bl.
  • Prices sliding for the second straight session, after an EIA report showed US gasoline inventories rose 3.5 million barrels last week, thumping expectations for a 71,000 barrel increase.
  • Demand concerns sending prices lower as mounting risks of a global recession, driven by aggressive monetary tightening, rattled oil markets and overshadowed ongoing supply tightness.
  • Oil prices have come under pressure since mid-June The US is also working on a plan to cap Russian crude prices. Energy News
• Gold weakened toward $1,690/oz, and in turn it fell to its lowest levels in almost a year. Bullion continues to be weighed down by a rebound in the dollar and looming interest rate hikes by major central banks amid a global fight against inflation.
  • The dollar snapped a three-day decline against major peers on Wednesday as investors reassessed the Federal Reserve’s tightening path.
  • The FOMC remains on track to raise interest rates by another 75 basis points next week after pushing back against expectations of a bigger 100 basis point increase.
  • In addition, we have the ECB today that is widely expected to raise interest rates for the first time in 11 years on Thursday.
    • Some analysts suggesting that it may consider a more aggressive move.
    • Analysts also flagged a potential half point rate hike from the Bank of England next month after the country’s inflation surged to a four-decade high in June. Kitco metals
• The US Dollar declined to 106.7 and in turn erasing gains in the previous session.
  • FX Traders weighed the Fed’s hawkish plans against expectations that other major central banks will act more aggressively to catch up with inflation.
  • The US central bank is on track to raise interest rates by another 75 basis points next week after pushing back against expectations of a bigger 100 basis point increase.
  • Markets also awaiting news that the ECB will hike for the first time in 11 years. FX NEWS

• ITALY

  • Italian PM Mario Draghi resigned after failing to revive his coalition government.
    • It will pave the way for fresh elections and opening a new chapter of political uncertainty.
    • Speaking to parliament, Draghi said he was going to speak to President Sergio Mattarella and inform him of his intentions after failing to unite his fragile coalition government.
    • Last week, Mattarella rejected Draghi’s first resignation and asked him to lead more negotiations with lawmakers in the hope of avoiding snap elections. CNBC