Morning NOTE

GOOD MORNING

The ZAR continued to trade stronger on the back of momentum gained following the SARB’s 75 bps rate hike.

• USDZAR 16.8500
• EURZAR 17.1800
• GBPZAR 20.1700

SOUTH AFRICA   

• Under pressure SA president, Cyril Ramaphosa, said the government is making progress on a plan to boost economic growth.
  • This after he was criticised by one of the nation’s former leaders for failing to deliver the plan.
  • Ramaphosa on February 10 pledged to provide a comprehensive social compact — in cooperation with business, labour unions and civil society — within 100 days.
  • Former President Thabo Mbeki last week slammed Ramaphosa for not fulfilling that promise.
  • Mbeki warned that growing poverty and lawlessness in the country risks triggering protests that engulfed the Arab world a decade ago. Source : Moneyweb
• Business SA has warned against the governments plans to implement the BASIC INCOME GRANT.
  • In addition, Intellidex, warned in a study that it would result in a faster emigration of SA tax payers.
    • The study added, that SA up to now has been ranked as the world’s most unequal nation, would not benefit as it would slow economic growth.
  • SA President Cyril Ramaphosa have said the measure, the biggest of its kind globally if implemented, aims to alleviate poverty.
    • Business organisations have cautioned against it, saying it’s unaffordable. IOL
• Sasol, SA’s largest fuel producer, announced that Crude supply to its Natref refinery has been “partially restored”
  • Sasol declared force majeure on the supply of petroleum products on 15 July, due to delays in delivery in crude oil shipments to Natref.
  • Sasol also said that its fuel production dropped 10% in the financial year to end in June.
  • This was mainly due to a postponed annual plant shutdown, coal supply and quality challenges and operational instabilities. News24
• In a worrying development, the UN released a report the implicated SA.
  • The report stated that Islamic State (ISIS), were getting financial support from South Africa.
  • The document, stated, “ highlighted the emerging importance of South Africa in facilitating transfers of funds” from IS leadership to affiliates on the continent, the UN said.
  • “The monitoring team is aware of several large transactions totalling more than $1 million.”  News24

GLOBAL MARKETS

Stocks:

• US stock futures were lower in early trading on Monday as investors brace for a busy week of market-moving catalysts, headlined by the Federal Reserve meeting.
  • This is followed by GDP data and big tech earnings.
• Last week, the major averages closed the week higher as investors speculated on a market bottom.
  • This resulted in gains across the board with the Dow up 1.95%, while the S&P 500 and Nasdaq rose 2.55% and 3.33%, respectively.
• The Fed is expected to raise rates by another 75 basis points at its July 26-27 meeting.
  • Investors will get a look at advance estimates for Q2 GDP on Thursday amid concerns over a potential recession.
  • More than a third of S&P 500 companies will also report earnings this week.
• The market will however pay attention to the mega cap tech names including Apple, Microsoft, Alphabet, Amazon and Meta Platforms taking centre stage.

Bonds:

• The yield on the US 10-year fell below the 2.8% mark, a level not seen in 2 months.
• Buying of US treasuries ensued  as investors rushed to safe-haven assets amid lingering of a global economic recession.
  • Investors citing aggressive FED tightening.
  • The Federal Reserve, the world’s most influential central bank, so far has raised rate by 1.5 % this year, with another 75 bps hike in July regarded as inevitable.
  • While such an aggressive tightening should be the key to bringing down 40yr high inflation,
  • Investors have grown concerned that it will also tip the world’s largest economy into a recession.

ON FRIDAY

• The Dow fell 137 to 31,899
• The SP500 declined 37 to 3,961
• The Nasdaq declined 225 to 11,834

Futures Trading:

• image : Trading economics

OVERNIGHT HEADLINES

• Asian markets mostly lower this morning, following Friday’s late drop on Wallstreet as traders booked profits ahead of this week’s key FOMC meeting.
  • The Nikkei leading the decline while Shanghai (China) and the Kospi (S.korea) all traded lower.
  • In Japan, the Nikkei 225 fell 0.77% to close at 27,699 after booking strong gains last week.
    • Traders turned cautious ahead of the US Fed meeting where it is expected to deliver another 75 basis point rate hike to combat inflation.
    • Markets are also bracing for second quarter US GDP data due on Thursday that is expected to confirm a slowdown in the world’s largest economy.
    • Japanese Technology shares led the decline as they tracked their US peers lower.
  • In Australia, the ASX traded flat as commodity gains were offset by tech losses.
    • The ASX 200 Index was flat (- 0.02%) to close at  6,790 as investors assessed mixed corporate results from major domestic companies.
    • The upcoming US FOMC meeting also kept sentiment in check.
    • Technology stocks weighed on the index, with losses from Xero (-1.1%), offsetting gain from mega miners Rio Tinto (0.9%) and BHP Group (1.6%). Source : Reuters
• Brent crude oil, fell below $103 per barrel on Monday, sliding for the fourth straight session.
  • Traders cited fears that a global economic slowdown will hurt energy demand and it outweighed ongoing supply tightness.
  • The US Federal Reserve is expected to deliver another rate hike this week, that some fear would cause a demand destruction.
  • Also, estimates for Q2 US GDP due on Thursday will give investors insight on the state of the world’s largest economy.
  • However, Supporting prices were, Biden’s failure to secure a pledge from Arab leaders to pump more oil. Source : Energy News
• Gold traded around $1,725/oz after rising for 2 straight sessions.
  • The safe-haven Bullion benefited from recent weakness in US Treasury yields amid renewed fears about a potential recession.
  • The Fed is expected to deliver another rate hike this week, that some fear would tilt the economy into recession.
  • BUT, Gold remains 16% off its high’s as the Fed’s aggressive interest rate hikes and the Dollar’s relative strength continued to pressure bullion demand. Source : Kitco Metals
• The US dollar flat-lined around 106.6 after losing more than 1% last week.
  • The Buck previously gained  support from Fed rate hikes and safe-haven bids driven by global recessionary concerns.
  • Although 75 bps is largely priced in the markets will focus on how hawkish Fed Chair Jerome Powell sounds as he aims to get some type of soft landing.
  • Second quarter US GDP due on Thursday will give investors more insight on the state of the world’s largest economy. Source : Forex News

• Wheat prices

  • Wheat prices were up almost 3% to $7.8 per bushel on Monday, after Russia attacked the sea port of Odesa during the weekend.
    • On Friday, wheat prices fell almost 6% to low levels prior to Russia’s invasion of Ukraine.
      • The drop after Russia and Ukraine signed an agreement to resume grain exports from Ukrainian ports in the Black Sea.
      • The safe trade corridor will allow Ukraine to export over 20 million tonnes of grain reported to be accumulated in port silos since the war started on February 24.
      • This would also allow stockpile space for the coming wheat harvest. Source : CME news

• UKRAINE – RUSSIA

  • World leaders swiftly condemned Russian missile strikes on a Ukrainian port.
    • The dramatic revelation comes on the heels of a U.N.-brokered deal that secured a sea corridor for grains and other foodstuff exports.
    • The strike on Odesa, Ukraine’s largest port, showed another failed effort to mitigate a mounting global food crisis.
    • Some leaders going so far as to say Putin cannot be trusted.
  • On the back of the  UN “Deal”  Wheat prices initially fell to $7.6 a bushel,
  • But has since rebounded nearly 3% at the open of the European trading session to $7.90/bushel.