Morning NOTE

GOOD MORNING

The ZAR strengthened sharply after the SARB surprised the market with a 75 bps rate hike.

• USDZAR 17.0500
• EURZAR 17.3700
• GBPZAR 20.3900

SOUTH AFRICA   

• South Africa’s repo rate has been pushed sharply up, by 75 basis points (bps) – the steepest hike since September 2002.
  • The rate hike was announced by South African Reserve Bank (SARB) Governor Lesetja Kganyago on Thursday, moving to front-load a more hawkish increase to rein in resurgent inflation.
    • It also implies, that SA’s prime lending rate (of commercial banks) will increase to 9%.
    • While many economists originally predicted a 50bp hike for the SARB’s MPC meeting.
      • …the polling was done before the higher-than-expected June headline inflation figure of 7.4% published on Wednesday.
• Former SA president Thabo Mbeki warned that the country could see an uprising similar to the Arab Spring, triggered by mounting discontent among South Africans.
  • Mbeki made the comments on the back of the country’s record-high unemployment, concerning crime trends and energy insecurity.
  • He said that while the government was aware of the brewing frustrations among citizens, the anger could lead to a repeat of last year’s deadly July unrest. Source  EWN
• Pravin Gordhan,The Minister of Public Enterprises, has once again called for help in recruiting experienced engineers to solve Eskom’s power crisis.
  • Gordhan accepted a long-standing offer from trade union Solidarity to help mobilise “critical skills” which he’s previously acknowledged the ailing power utility is short on.
  • Solidarity in 2019, first  provided Gordhan with a list of more than 700 individuals it had identified who were willing and able to assist but nothing came of it at the time.
• SARS has lodged a claim for R931.1 million against Mirror Trading International (MTI), the collapsed bitcoin investment scheme.
  • The claim was lodged earlier this month with the Master of the Cape High Court in respect of the 2019 and 2020 tax years.
  • SARS lays the blame at the feet of the company officers and liquidators for not submitting the relevant income tax returns.
  • In a statement it said  “failed to carry out their duties as the deemed public officers of MTI”.  Moneyweb

GLOBAL MARKETS

Stocks:

• After a another rally in New York, Asian market saw US stock futures falling as investors digested more corporate earnings reports.
  • Nasdaq 100 futures fell 0.7%, while Dow and S&P 500 futures lost 0.2% and 0.4%, respectively.
• The price action likely to break a hot streak on Wall Street, with the three major averages posting their third straight positive session on Thursday.
  • Still, the tech-heavy Nasdaq is on track to gain more than 5% this week, while the Dow and S&P 500 are up 2.4% and 3.5%, respectively, so far this week.

Bonds:

• The US Treasury 10-year yield fell below the 2.9% mark as investors rushed to safe-haven assets.
  • Traders citing continued fears that an aggressive tightening worldwide to tame sky-high inflation will eventually tip economies into a recession.
  • The ECB surprised markets with a larger-than-expected 50 bps hike on Thursday.
  • The move ending eight years of negative rates, while revealing a new bond-buying program to tame borrowing costs for the eurozone’s most indebted countries.
• Next week the Fed, the the world’s most influential central bank, is expected to hike another 75 bps hike in July regarded as inevitable.

YESTERDAY

• The Dow added 162 to 32,036
• The SP500 added 39 to 3,998
• The Nasdaq  added 161.96 to 12,059

Futures Trading:

• image : Trading economics

OVERNIGHT HEADLINES

• Asian markets higher, following another rally in New York.
  • In Japan, the Nikkei gained 0.4% to close at 27,915 posting its biggest weekly gains since March. Traders citing a change in sentiment as it was helped by a boost from Wall Street.
    • Also the Bank of Japan remained an outlier by retaining its easy monetary policy.
    • Investors also watched for market reaction after data showed Japanese core consumer prices inched up in June and stayed above the BOJ’s target for the third straight month.
    • Shipping firms led the advance on Friday but investors remained cautious ahead of more corporate earnings and the Federal Reserve policy meeting next week.
  • In Australia, the ASX 200 traded flat at 6 ,792 but closed the week 2.8% higher.
    • Traders citing upbeat corporate earnings and improving risk sentiment prompted bulls to step in this week.
    • However investors remained cautious about the prospect of a global recession as major central banks raise interest rates to tame surging inflation.
    • Financial stocks advanced on Friday, with the “Big Four” banks rising between 0.2% to 2.8%
• Crude futures rose above $97 per barrel on Friday after falling for two straight sessions.
  • Traders cited another volatile week marked by persistent supply-side issues. In addition, weakening US gasoline demand and mounting risk of a global economic slowdown.
  • President Joe Biden failed to secure a pledge from Arab leaders this week to pump more oil.
    • Also , Saudi Crown Prince Mohammed bin Salman and Russian President Vladimir Putin reportedly discussed continued cooperation within OPEC+ in a phone call on Thursday. Energy News
• Gold rallied more than 1% to hit $1718/oz after the ECB surprised the market with a larger than expected 50 bps hike.
  • This resulted in a drop in the Dollar and provided support to Bullion.
  • The Fed however remains on track to hike by 75 bps, although some had called for 100bps.
  • Markets will be watching for the US central bank’s forward guidance on rates, as any hawkish statement could push the dollar higher and hurt gold prices. Kitco metals
• The Dollar declined to trade below the 107 handle, settling at 106.80.
  • 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 will be watching for the Fed’s forward guidance on rates, as any hawkish statement could push the dollar higher and hurt other major currencies.
  • The greenback fell on Thursday after the European Central Bank raised rates by a larger-than-expected 50 basis points for the first hike since 2011.
  • However, dollar dips are seen as short-lived given the US’s relative economic strength and more aggressive tightening path. FX news