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Morning NOTE

25 May 2022


The ZAR advanced on the back of a weaker Dollar ahead of today’s FOMC minutes release.


  • The Rand strengthened to 15.6100, after broad-based Dollar weakness set in across the board.
  • US Treasury yields falling, with the 10YT trading at 2.65% vs a high of 3.2% a few weeks ago.
    • Investors concerned about high inflation and the FED’s aggressive policy that could lead to a slowdown in economic growth and in turn a recession.
    • At the same time, investors scaled back bets on whether US interest rate hikes will drive further greenback gains.
    • Traders comfortable that aggressive tightening by the Federal Reserve is already priced in.
    • The dollar losing ground against all major EM & G7 currencies.
  • Equity markets continued to range trade ahead of today’s FOMC minutes at 20h00 SA time.
  • The tone of the language likely to drive further direction in the FX markets.

The data front

  • Tonight : 20h00 US FOMC MINUTES
  • Thursday : 11h30 SA PPI
  • Thursday : 14h30 US GDP  
  • Today : Expect some more ZAR consolidation, with early profit taking ahead of the minutes tonight.
    • Following the tone on Wallstreet and the fall in US treasury yields, the Dollar appears to be in a correction phase
    • NB: The trend however remains for a Dollar Bull run as long as the Fed keeps on hiking rates.
    • Traders now awaiting the FOMC minutes as more uncertainty grabs markets.  
  • USDZAR :  Expect a range 15.5400-15.7700
    • Importers 15.6100-15.5400
    • Exporters 15.7300-15.7700
  • EURZAR :  Expect a range of 16.6300-16.9400
    • Importers 16.7200-16.6300
    • Exporters 16.8600-16.9400
  •  GBPZAR :  Expect a range of 19.5200-19.8400
    • Importers 19.6000-19.5200
    • Exporters 19.7200-19.8400
  • USDZAR 15.6900
  • EURZAR 16.8000
  • GBPZAR 19.6700


  • Ramaphosa maintains, Raymond Zondo was the best person for chief justice as EFF presses him for ignoring JSC’s choice.
    • In March, Ramaphosa appointed Zondo, even though the JSC recommended Mandisa Maya.
    • Ramaphosa subsequently nominated Maya for deputy chief justice. NEWS24
  • Load shedding continues to destroy SA businesses with reports of multiple small businesses being forced to close.
    • Despite a recent uptick in Covid-19 cases, possibly linked to a fifth wave of infections, hospital admissions throughout South Africa remain relatively low. BI
    • Also, while hospitals are no longer inundated with Covid-19 cases, they’re now needing to compete with the country’s socio-economic shortfalls.
    • In addition, leading healthcare provider Netcare, cited load shedding, rising fuel costs and a nurse shortage as key risks to its business model.
  • The KZN floods continue to wreak havoc as news emerged that municipal employees went missing during the heavy floods this weekend.
    • It is understood that their vehicle has been spotted in a river near Osindisweni.
    • Officially the death toll stands at 400, with property damage in the billions of Rands. IOL
  • South Africa’s middle class is having to make major adjustments as the rising costs of fuel, food prices and interest rates impact their way of life.
    • Soaring prices of food, fuel and electricity among other items have been exacerbated by the Ukraine-Russia war.
    • In addition, the fall in stock markets and the pandemic continues to add to uncertainty.
    • Families and individuals say that they are quickly running out of options as salaries have not grown at the same rate as inflation for many years. EWN



  • US stock futures rose on Wednesday after technology shares sold off overnight.
    • Sentiment remains fragile following a warning from Snap that it will miss its own earnings and revenue targets.
  • This morning, futures contracts tied to the three major indexes were all trading in positive territory.
    • In regular trading on Tuesday, the tech-heavy Nasdaq dropped 2.35%.
      • Adding to the uncertainty was Tesla, that continues to nosedive.
      • Rumours of Elon Musk needing to sell Tesla stock to fund the Twitter purchase continues to weigh on the price.
        • Tesla traded at $627.84 this Tuesday May 24th, decreasing $47.06 or 6.97 percent since the previous trading session.
        • Looking back, over the last four weeks, Tesla lost 37.09 percent. 
  • Yields continue to fall as investors look for the safety of government backed bonds.
    • Core government debt witnessed heavy buying pressure as investors rushed into safe-haven assets.
    • This even as lingering concerns that soaring inflation and an aggressive tightening from central banks could tip developed economies into a recession.
    • The yield on the 10-year US Treasury note, which sets the tone for corporate and household borrowing costs worldwide, eased to a four-week low of around 2.72%.
    • Meantime, Germany’s 10-year Bund yield, the benchmark for Europe, bottomed below 0.95%. source: U.S. Department of the Treasury
  • The Dow added 48 points to 31,928
  • The Sp500 fell 32 to 3,941
  • The Nasdaq  declined 270 to 11,265
Futures Trading:
  • image : Trading economics
  • Asian markets mixed with Japan lower and Australia & China higher.
    • In Japan, the Nikkei 225 fell 0.26% to close at 26,678, extending losses from the previous session and taking cues from a tech sell-off on Wall Street.
      • Investors dumped stocks in the digital advertising space after Snap warned that it will miss its own earnings and revenue targets.
        • SoftBank Group declined 1.7%, along with other technology stocks.
        • Elsewhere, a Reuters poll showed that analysts expect the Nikkei share index to climb over 7% to 29,000 by year-end.
        • Reasons given were Japan’s economic reopening, receding worries about Covid-19 and attractive valuations.
    • In Australia, the ASX 200 Index rose 0.37% to close at 7,155 on Wednesday, as gains in financial and gold stocks outweighed losses in the technology sector.
      • Australian banks jumped as rising interest rates lifted the outlook for the sector, with strong gains from Commonwealth Bank (1.1%)
      • Gold miners also advanced on higher Gold bullion prices.
  • Crude oil rallied to hit $111/bl.
    • The rally erasing losses from the previous session on the prospect for even tighter global supplies and expectations of stronger demand.
      • The new French foreign minister said, those opposing the EU sanctions on Russian oil could be convinced to change their stance.
        • If successful the deal threatens to tighten global supply further.
      • Across the pond, travel during the US Memorial Day weekend is also expected to keep upward pressure on oil prices.
      • In addition, more American drivers are expected to hit the road and shake off Covid restrictions. Energy news
  • Gold stabilised around $1,860/oz on Wednesday after climbing for five straight sessions.
    • Traders citing, lower yields keeping the dollar under pressure.
    • Meanwhile, gold held near two-week highs scaled on Tuesday as investors hedged against surging inflation and a challenging growth outlook.
    • Safe haven buying also a factor, as the war in Ukraine escalates to the eastern flank of the country. Kitco metals
  • The US dollar declined to 102 on Wednesday on the back of falling US Treasury yields.
    • The dollar faced pressure in the past two weeks and tracked broad declines in Treasury yields.
    • Traders citing fears that aggressive Federal Reserve rate hikes could tilt the US economy into recession.
    • Atlanta Fed President Raphael Bostic warned that headlong rate hikes could create “significant economic dislocation”.
      • He urged his colleagues to “proceed carefully” in an essay published Tuesday.
    • Investors now await minutes of the latest central bank meeting for fresh clues on the likely path for monetary policy.
    • Analysts also suggested that if inflation reads started showing signs of moderating, that could open up the possibility of a Fed pause. FX news
  • The Euro extended gains to above $1.0700, the highest in 4 weeks.
    • The move after ECB President Christine Lagarde said the ECB is likely to exit negative interest rates by the end of the third quarter.
    • Traders were already boosting bets for higher borrowing costs after hawkish comments from ECB Knot and ECB Villeroy de Galhau last week. FX news


  • Russia is now exposed to a historic debt default.
  • Up until Wednesday, the U.S. Treasury Department had granted a key exemption to sanctions on Russia’s central bank.
    • The exemptions allowed it to process payments to bondholders in dollars through U.S. and international banks, on a case-by-case basis.
    • Adam Solowsky, partner in the Financial Industry Group at global law firm Reed Smith;
      • … said “… Moscow will likely argue that it is not in default since payment was made impossible, despite it having the funds available…” CNBC
  • Ukraine’s President Volodymyr Zelenskyy has said the situation in the Donbas in eastern Ukraine is “very difficult”.
    • Russian forces are concentrating their fire and manpower on assaulting the region and seizing key cities there.
COVID-19 SOURCE https://www.worldometers.info/coronavirus/ Cases / Deaths / Recoveries
  • WORLD 529,160,159/ 6,303,961 / 499,667,494
  • USA 85,241,016 / 1,029,524 / 8,764,911
  • SA 3,935,761 / 101,002 / 3,780,159
    • **SA 50 new deaths
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