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Morning NOTE

27 May 2022


The ZAR strengthened after a weaker than expected US GDP report that might force the FED to change its ultra-hawkish stance.


  • The Rand strengthened after the US GDP delivered to a negative -1.5% vs +6.9% in its previous print.
    • In a clear sign that high inflation as well as rising interest rates are affecting consumers and directly economic growth, the economy came to a stand still.
    • Stocks however rallied after investors used this as a sign that might the FED might be forced to slow down on its contractionary monetary policy path .
  • Earlier in the session SA PPI printed a disappointing 13.1% YOY vs 12.3% expected.
    • The risk that energy and high commodity prices continues to stoke producer inflation and it will eventually be passed onto the consumer .
  • The SARB mostly likely to continue hiking interest rates and thus maintain the ZAR’s carry attractiveness, and result in a stronger ZAR.
  • Globally RISK-ON at the front and centre as most liquidity driven assets recover.
    • From Stocks, EMFX and even Crypto, all with a bid bias on this Friday morning.
    • **The negative GDP print , a cause of concern as  it appears a combination of high inflation and interest rate hikes are starting to affect the growth of the world’s largest economy.

  • Today : Expect some more ZAR gains as the market follows risk on sentiment, following a strong showing on Wallstreet.
  • The next Fed decision becoming more important as raising rates likely a problem as the economy printed a negative GDP.
    • A rally in risk assets likely to be ZAR supportive.
    • NB: The trend however remains for a Dollar Bull run as long as the Fed keeps on hiking rates.
  • USDZAR :  Expect a range 15.5500-15.8500
    • Importers 15.6500-15.5500
    • Exporters 15.7500-15.8500
  • EURZAR :  Expect a range of 16.6200-16.9700
    • Importers 16.8100-16.6200
    • Exporters 16.9000-16.9700
  • GBPZAR :  Expect a range of 19.6000-19.9200
    • Importers 19.7200-19.6000
    • Exporters 19.8600-19.9200
  • USDZAR 15.6800
  • EURZAR 16.8600
  • GBPZAR 19.8200


  • Despite the large scale flooding in KZN and continued rains in Gauteng, the Eastern Cape is faced with a different crises.
    • Water Taps in Nelson Mandela Bay could soon run dry – as day zero-looms for the region.
      • The municipality said it’s now preparing for the worst – as it experiences one of the worst droughts in years.
      • Nelson Mandela Bay’s combined dam level stands at 12.3%.
      • The municipality is preparing for the worst as critically low water resources could see the taps run dry in some regions of the metro. EWN
  • Cosatu has warned the ANC that if it continues to privatise state-owned entities (SOEs) such as SAA and Eskom it would suffer a massive loss of membership and electoral support.
    • The warning came less than a week after Public Enterprises Minister Pravin Gordhan insisted that the government was continuing with the 51% share sale of SAA. News24
    • The federation strongly opposes the sale of state assets.
    • The trade union federation issued the warning yesterday following its three-day central executive committee meeting, which ended on Wednesday.
  • The health department announcing that SA is fast approaching the 50% vaccination mark for adults.
    • Deputy Minister in the Presidency Pinky Kekana said that South Africa was nearing the halfway mark for adult COVID-19 vaccinations.
    • However, it’s nowhere near the 70% government had hoped for by this stage.
    • In addition, the government continues to research vaccine hesitancy.  EWN



  • US stock futures were little changed on Friday after a broad rally on Wall Street overnight.
    • Contracts tied to the three major indexes all traded near breakeven.
  • In regular trading on Thursday, the Dow rose 1.61%, the S&P 500 added 1.99% and the Nasdaq rallied 2.68%.
    • On a weekly basis, the Dow is up 4.4% so far and is on track to snap an eight-week decline.
    • The S&P 500 and Nasdaq are also up 4% and 3.4%, respectively, this week and are set to snap seven straight weeks of losses.
  • The market thinking the negative GDP print could result in a FED changing course.
  • The 10-year US Treasury note yield, was relatively unchanged at the 2.75% level as investors digested the minutes of the May FOMC meeting.
    • Policymakers showed strong consensus in backing a 50bps rate hike in the last meeting, and in the coming meetings, as inflation risks are skewed to the upside.
    • However, the negative GDP print concerning investors and the question remains will the FED take this into account when it decides the way forward.
    • Still, the magnitude of tighter monetary policy for the rest of the year remains unclear, owing to high uncertainty due to the war in Ukraine. source: U.S. Department of the Treasury
  • The Dow rallied 516 to 32,637
  • The SP500 added 79 to 4,057
  • The Nasdaq  gained 305 to 11,705
Futures Trading:
  • image : Trading economics
  • Asian markets all better bid on the back of a rebound on Wallstreet.
    • The Nikkei 225 rose 0.66% to close at 26,781, tracking a broad overnight rally on Wall Street, with chip-related and commodity stocks leading the market higher.
      • Global equities staged a relief rally as investors took comfort after minutes of the last FOMC minutes showed broad consensus among policymakers and opened the door for a pause in rate hikes later this year.
    • In Australia, Resource-related stocks also benefited from high ASX 200 Index jumped 1.08% to close at 7,183 erasing losses in the previous session.
      • Gains on Wall Street, with technology stocks leading the charge and Mining and energy stocks also advanced on higher commodity prices, including BHP Group (2.5%), Rio Tinto (2.7%),
  • Brent crude traded at $117/bl on Friday but were on track to close the week higher.
    • The price buoyed by persistent concerns about tight global supply.
      • EIA data released on Wednesday showed a larger-than-expected drawdown in US crude inventories last week due to soaring exports, highlighting a tight global market.
      • Also the EU continues to haggle with Hungary over banning oil imports from Russia.
      • The EU confident that an agreement can be reached before the council’s next meeting on May 30.
        • A top Hungarian aide said the country needs 3-½ to 4 years to shift away from Russian crude and make huge investments to adjust its economy.
      • Elsewhere, OPEC+ is widely expected to stick to last year’s oil production. Energy News
  • Gold climbed to $1,850/oz and on track for its 2nd straight weekly gain, benefiting from recent weakness in the dollar.
    • The dollar hit its lowest against a basket of major currencies as traders lowered Federal Reserve rate hike expectations amid signs the central bank might slow or even pause its tightening cycle later this year.
    • Minutes of the last FOMC meeting showed that most participants believed that 50 basis point rate hikes would be appropriate at each of the next two meetings in June and July to get on top of inflation.
    • However, many officials thought big, early hikes would allow room to pause later in the year to assess the effects of that policy tightening, while carefully watching the evolving economic outlook. Kitco
  • The US dollar weakened toward 101.5 on Friday, hitting its lowest level in a month, as investors reassessed expectations about future Federal Reserve rate hikes.
    • GDP showing signs the central bank might slow or even pause its tightening cycle later this year.
    • Minutes of the last FOMC meeting showed that most participants believed that 50 basis point rate hikes would be appropriate at each of the next two meetings in June and July to get on top of inflation.
    • The dollar also tracked Treasury yields lower as recent softness in US economic data and corporate earnings raised fears of an economic slowdown.
    • The index is down 1.5% so far this week and is on track to decline for the second straight week.
  • Crypto
    • Bitcoin/USD  traded at $ 28,961.6 decreasing 468.9 or 1.59% since the previous trading session.
    • Over the last four weeks, Bitcoin lost 27.36%. Over the last 12 months, its price fell by 18.84 percent.
    • Analysts are forecasting Bitcoin to $ 27,974.2 by the end of Q2 and at 24,152.1 in one year.
    • Fed tightening sited as a major risk.
COVID-19 SOURCE Cases / Deaths / Recoveries
  • WORLD  530,462,319 / 6,308,021 / 501,043,882
  • USA 85,570,755 / 1,030,775 / 81,937,406
  • SA 3,944,845 / 101,992 / 3,793,500
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