Morning NOTE

GOOD MORNING

The ZAR consolidated at stronger levels ahead of tomorrow’s key FED rates decision.

• USDZAR 16.7700
• EURZAR 17.1400
• GBPZAR 20.2200

SOUTH AFRICA   

• In a speech to South Africans on Monday night, the  Government said the licensing threshold for embedded energy generation projects will be lifted.
  • Cyril Ramaphosa in a speech, emphasising the urgent need to add new generation capacity to the national grid.
  • He said :…. “We will release a request for proposals for battery storage by September this year and a further request for gas power as soon as possible the after,” the president said.
  • Ramaphosa’s address follows a number of consultations within government as well as with affected parties and experts outside of government in a bid to resolve South Africa’s crippling energy struggles. EWN
• Agbiz chief economist, Wandile Sihlobo, said, the grain prices are unlikely to return to pre-war levels.
  • This after Russia signed a grain deal with Ukraine.
  • He cited, the drought in South America, East Africa and Indonesia as well as rising demand for grains in China had weighed on global grains supplies these past few seasons and pushed prices up even before the war. IOL
• The Department of Mineral Resources and Energy has started the formal process of deregulating the price of petrol in South Africa.
  • Energy Minister Gwede Mantashe on Friday published a government gazette, asking the public to chip in on his intention to introduce a price cap for 93 octane.
  • This will allow fuel retailers to set their own fuel prices including petrol discounts.
  • Currently, the exact price of petrol is set by the government.
  • South Africans have 30 days to comment on the proposal before the process can be implemented. Business report

GLOBAL MARKETS

Stocks:

• Futures trading lower this morning, ahead of the FED’s rates decision and mega-tech reporting earnings.
• Stocks ended mixed in regular trading on Monday, with the Dow and S&P 500 gaining 0.28% and 0.13%, respectively, while the tech-heavy Nasdaq dropped 0.43%.
  • Companies about to report earnings on Tuesday include Microsoft, Alphabet, Visa, Coca-Cola and McDonald’s, among others.
• This morning futures lower after Walmart fell following a slashing in its profit forecast.
  • Walmart sank nearly 10% in extended trading after cutting its quarterly and full-year profit estimates.
  • The company citing reduced consumer spending due to rising prices.
  • The announcement dragging other retail stocks lower in after-hours trading.
• Futures contracts tied to the three major indexes each lost about 0.4%.
  • Other retailers also declined including Target (-5.1%), Macy’s (-4.2%), Costco (-3.1%), Dollar General (-4.3%) and Amazon (-3.9%).  Source :  Bloomberg

Bonds:

• US 10YT yields declined to 2.77% ahead of the FED’s key rates decision.
  • Bond traders continue to trade with an inverted yield curve as investors remain concerned about an Impending recession.
  • Traders citing a “flight to safety” trade as investors opt for the safety of US government debt. Source :  Reuters

YESTERDAY

• The Dow gained 90.75 points to 31,990
• The SP500 added 5 points to 3,966
• The Nasdaq declined 51 points to 11,782.

Futures Trading:

• image : Trading economics

OVERNIGHT HEADLINES

• Asian markets trading mixed this morning, but all remaining close to the “unchanged “ level ahead of the Fed tomorrow might.
  • Traders across the globe uneasy about take large directional bets.
  • In Japan, the Nikkei 225 Index fell 0.16% to close at 27,655, and in turn falling for the 2nd straight session.
    • Tech stocks leading the decline, following overnight losses on the tech-heavy Nasdaq.
    • Investors bracing for a FOMC decision where it is expected to deliver another large rate hike to combat inflation, further pressuring risk assets.
  • Australia trading largely unchanged with the ASX200 at 6807, ahead of the FED.  CNBC
• Crude oil
  • The battle between Supply & Demand continues pretty much on a daily basis.
  • This morning Crude firmed to $98//bl with the US WTI benchmark trading higher.
    • SUPPLY :
      • Traders citing Supply concerns, after Russia’s Gazprom it would drop supplies through the Nord Stream 1 pipeline to Germany to just 20% of capacity.
      • The move will force consumers to switch from gas to crude as an energy source.
      • Tensions between the West and Russia elevated as G7 nations prepare to impose a price cap on Russian oil.
  • However Moscow pushed back against such plans and said it would not supply oil to countries that impose such restrictions.
    • DEMAND : The Fed’s monetary policy remains a concern as data suggest the world’s largest economy might be heading for a recession resulting in a drop in crude demand.  Energy News
• Gold edged higher to around $1,725 /oz on Tuesday after falling 0.4% in the previous session.
  • Bullion has benefited from recent weakness in the dollar and US Treasury yields amid mounting recessionary risks.
    • The FED is expected to deliver another 75 bps, leading a global fight against inflation that some feared would tilt the world’s largest economy into recession.
  • Recent US and European data are already showing signs of slowing economic activity, while China narrowly missed a contraction in the second quarter.
  • However, prices remain 16% off the year-to-date high due to the rampant US Dollar. Kitco metals
• The US dollar remained steady around 106.4.
  • The Buck continued to trade in a tight range as investors avoided making big bets ahead of a key Federal Reserve meeting.
    • The world’s most important central bank is once again expected to balance inflation-fighting efforts against mounting risks of a recession.
    • The US central bank is widely expected to deliver another 75 basis point rate hike this week.
  • Last week, data showed US business activity contracted in July for the first time in nearly two years.
  • Advance estimates for second quarter US GDP due on Thursday will give investors more insight into the state of the world’s largest economy. FX news

• Commodities (RUSSIA-UKRAINE)

  Supply crises

  • EU natural gas futures rose more than 10% to above €170-per-megawatt-hour on Monday.
    • The spike after mega-Russian gas company, Gazprom said it would further reduce flows through Nord Steam pipeline.
      • The company said the pipeline will now only deliver 33 million cubic meters a day from Wednesday, only 20% of its capacity.
        • The company citing that another turbine will be halted for maintenance.
      • Meanwhile, the repaired turbine was finally delivered to Germany from Canada, but another shipment to Helsinki was delayed amid paperwork issues.
  • The EU already suggested that member countries ration natural gas use by 15% and has drafted a mandatory trigger in the event the situation worsens. Energy NEWS