Morning NOTE

GOOD MORNING

The ZAR weakened in Tuesday trading, on the back of a weaker EURO and position covering ahead of the FOMC tonight.

OPENING RATES

• USDZAR 16.8900
• EURZAR 17.1300
• GBPZAR 20.3600

SOUTH AFRICA   

• Telkom is taking President Cyril Ramaphosa to court over the probe he ordered into alleged malfeasance at the telecoms provider.
  • Ramaphosa asked the Special Investigating Unit (SIU) in January to investigate reports of corruption at the semi-state owned company
  • Telkom has now filed papers at the North Gauteng High Court to stop the investigation into its African operations dating back as far as 2006. EWN
• Eskom will starting buying power from private producers to boost the national grid.
  • This was one of the new energy measures announced by President Cyril Ramaphosa on Monday night as he tries to bring an end to rolling power cuts.
  • As well as setting up a new energy crisis committee, the plan is to bid for more renewable energies,
  • In addition, it was lifting licensing requirements for private power producers and to allow solar-powered homes to sell excess electricity back to Eskom. Moneyweb
• SA’s major JSE-listed food retailers continues to play their part in trying to shield already compromised consumers from spiking food.
  • Shoprite Group, Pick n Pay and Woolworths, in trading updates released on Tuesday, reported maintaining internal selling price movements below the recorded consumer price index (CPI) food inflation rate.
  • The latest CPI print came in at 8.6% for June. SENS

GLOBAL MARKETS

Stocks:

• In regular trading on Tuesday, the major stock market averages all declined on the back of mixed corporate results as companies grappled with:
  • recession fears,
  • surging inflation,
  • and supply chain disruptions.
• Asian trading saw US stock futures rebounded, ahead of the latest Federal Reserve interest rate decision.
  • Contracts on the tech-heavy Nasdaq 100 rallied 1.4%, while Dow and S&P 500 futures gained 0.4% and 0.8%, respectively.
• Mega tech reported and Alphabet (parent of Google) jumped 4.9% in extended trading as the firm’s revenues remained solid despite a challenging outlook for the online advertising industry
  • Microsoft also gained 4% on a strong sales forecast.
  • Investors now look ahead to more quarterly reports and the Fed’s policy updates.

Bonds:

• The US Treasury 10-year yield fell below the 2.8% mark.
• Investors rushed to safe-haven assets on the back of fears of a pending recession due to aggressive tightening worldwide .
  • The US business activity contracted in July for the first time in nearly two years, pressured by a sharp slowdown in the service sector, clouding a market outlook darkened by soaring borrowing costs.
• The Fed has already raised benchmark short-term borrowing rates by 1.5 % this year, with another 75 bps hike in July regarded as inevitable.
  • The result is a buying a US bonds, widely regarded as safe haven assets.
  • While such an aggressive tightening should be the key to bringing down inflation, investors have grown concerned that it will also tip the world’s largest economy into a recession.

YESTERDAY

• The Dow declined 228 to 31,761
• The SP500 fell 45 to 3,921
• The Nasdaq  closed lower by 220 to 11,562

Futures Trading:

• image : Trading economics

OVERNIGHT HEADLINES

• Asian markets

  • Market mixed as stocks trade higher in the east.
    • After hours earnings from mega tech, surprised sentiment to the upside after both Microsoft and Alphabet reported positive results.
    • In Japan, The Nikkei 225 rose 0.22% to close at 27,716 reversing losses from earlier in the session,
      • It was helped by heavyweight chip-related stocks amid efforts by the Japanese government to support domestic chip production.
      • However, traders remain nervous ahead of the US Federal Reserve policy decision where it is expected to deliver another 75 basis point rate hike to combat inflation.
      • Chip makers leading gains .
    • In Australia, the ASX 200 climbed 0.23% to 6,823, after the latest inflation data came in slightly below expectations.
      • This prompted markets to scale back bets for a bigger 75 basis point rate hike from the RBA next month.
      • Australia’s annual CPI jumped 6.1% in the three months to June, missing a consensus forecast of 6.3%.
      • Investors are also preparing for an expected rate hike from the US Federal Reserve on Wednesday. REUTERS
• Crude WTI crude prices increased above $95/bl as an industry report pointed to a large drop in US crude inventories.
  • API data released late on Tuesday reportedly showed that US crude stockpiles declined by 4 million barrels last week.
  • It was much higher than the 1 million barrel drop expected by analysts in a Reuters poll.
  • Concerns that reduced gas supplies from Russia to Germany through the Nord Stream 1 pipeline would force a switch to oil also kept upward pressure on prices. ENERGY NEWS
• Gold Rallied to $1720/oz as investors prepared for the FOMC tonight.
  • Traders will be watching Fed Chair Jerome Powell’s comments after the meeting for clues on the likely path for US monetary policy.
  • Any hawkish surprise could pressure bullion markets further.
  • Meanwhile, fears of a global recession kept gold prices from further losses.

  • In addition we had  the IMF cutting its global growth forecasts as the world’s three largest economies, namely the US, China and the Euro area are stalling. LME NEWS

• The Dollar rallied to 107.15, as investors prepare for the outcome of the Federal Reserve’s policy meeting.
  • The Fed is expected to raise interest rates by another 75 basis points on Wednesday.
  • However pushing back versus earlier speculations of a larger 100 basis point increase.
    • Markets will be watching Fed Chair Jerome Powell’s comments after the meeting for clues on the likely path for US monetary policy
  • NB: A hawkish surprise could stoke another Dollar rally.
    • Meanwhile, US consumer confidence fell sharply in July, highlighting fears of slowing growth ahead of Q2 estimates of  US GDP due on Thursday. FOREX NEWS

• Natural Gas

  • US natural gas prices traded above the $9.7/MMBtu, a level not seen since July 2008.
    • Traders citing higher domestic and international demand being the primary driver.
    • This summer, many regions in the United States have experienced extreme heat, with demand for electricity reaching several record highs.
    • Soaring international demand is also adding to the bullish outlook.
    • Russia’s Gazprom said it would reduce flows through the Nord Stream pipeline.
      • The company citing issues with turbines, delivering only 33 million cubic meters daily, roughly 20% of its capacity, forcing European buyers to find replacements. BLOOMBERG