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Morning NOTE

3 August 2022


The ZAR weakened 2.43% after a Risk off session combined with investor nerves around on-going unrest.


  • The Rand weakened to 16.8500 after a Risk off session, on the back of investor reaction on the latest commentary from Fed policymakers and mixed earnings reports from major companies.
    • In addition, local unrest sparked by strikes in Tembisa due to service deliveries spooking ZAR longs after last years riots .
    • The local unit however recovering after an overnight rebound in stock futures.
  • The Dollar also revering after a rebound in Treasury yields, with the 10YT bouncing 17 bps to 2.71 %.
    • The Greenback rallying nearly 1% across the board.
      • In addition, Fed officials signalled resolve in their aggressive tightening path to bring inflation to reasonable levels.
        • San Francisco Fed President Mary Daly, normally a dove, said that the FOMC still has a lot of work to do before it gets inflation under control as people continue to struggle with higher prices.
        • In a separate statement, Chicago Fed President Charles Evans also opened up the possibility of another large rate hike in September but signalled policy caution, as they look to more data.
      • The comments confirmed as Global inflation remains “sticky” high, following another high print in a G7 country.
        • Switzerland printing 3.4% CPI in July 2022, the highest since October 1993, but lower than the expected 3.5%.


Significant data this week;

  • Wednesday :

    • 16h00  US ISM non-manufacturing 53.5 expected vis 55.3 previous
    • 16:00   US factory orders for June  1.1% vs 1.6% previous .
  • Thursday :
    • 13h00 : Bank of England Rate decision + 25 bps expected .
  • Friday :
    • 14h30 : US NON-FARM PAYROLLS  +250K expected vs 372k previous
    • 14h30 : US UNEMPLOYMENT RATE  3.6%  expected vs 3.6% previous


  • The ZAR weakened sharply on the back of Fed comments, local unrest and Risk off sentiment.
    • This morning, as the dust settles on what was another panic session, we notice that Risk has recovered with the SP500 once again back above 4100.
    • This leads me to believe that we can likely see consolidation or a reversal of yesterday’s weakness.
  • Moves are based on panic and stop hunt, exacerbated as “weak money” changes hands ahead of Friday’s key NFP report.
    • A strong jobs number likely to support this sell-off as it will allow for a continuation of the ultra-aggressively FED policy
    • However, a poor jobs number likely to change all this and we can see a Strong ZAR.
  • USDZAR : Expect a range 16.5300-17.0000
    • Importers 16.6400-16.5300
    • Exporters 16.8500-17.0000
  • EURZAR : Expect a range of 16.8600-17.1800
    • Importers 16.9600-16.8600
    • Exporters 17.1300-17.1800
  • GBPZAR : Expect a range of 20.1700-20.5600
    • Importers 20.2900-20.1700
    • Exporters 20.4400-20.5600


  • USDZAR 16.6800
  • EURZAR 17.0200
  • GBPZAR 20.3600


  • ESKOM : Stage 2 expected at short notice for next three days
    • Eskom warned on Tuesday that Stage 2 load shedding might be implemented at short notice between 16:00 and 24:00 over the next three days.
    • This is due to a delay in returning a generation unit to service each at Arnot, Kusile and the Koeberg power stations.
      • In addition,  the failure of a generation unit each at Medupi, adding to the constraints in power generation and supply. NEWS24
  • Gauteng Cooperative Governance MEC Lebogang Maile will visit Tembisa on Wednesday to speak to community members following this week’s deadly protests.
    • Four people died during the demonstrations over an increase in rates along with higher electricity prices.
      • Residents have accused the city of discontinuing a rebate of 100 free basic units.
      • Calm has since been restored in the East Rand township, which was brought to a complete standstill earlier this week.
    • In addition, the metro police in Ekurhuleni said they are now collecting intelligence, to determine the way forward in protest-hit Tembisa.
      • Many roads are reported to still be blockaded – but the situation appeared calmer on Tuesday.
    • Protestors have been unhappy about an increase in rates, along with higher electricity prices. EWN
  • Struggling JSE-listed retailer Massmart announced it expected a 51% decline in headline earnings for the 26-week period ended June 26.
    • The decline translates into a potential loss of R974.9 million, compared with the R645.4 million loss in the previous comparable period.
    • The management team, saying, that trading had been negatively impacted by two material items.
    • These are a once-off negotiated lease exit settlement cost of R184 million, relating to the Riverhorse Distribution Centre that was destroyed in the July civil unrest
      • and increased finance costs attributable to a higher opening net debt balance due to rising interest rates. Moneyweb


  • Traded in red on Tuesday following a combination of Risk off factors that included geo-political tensions with China and Fed officials confirming an aggressive monetary policy stance.
    • In regular trading on Tuesday, the Dow fell 1.23%, the S&P 500 lost 0.67% and the Nasdaq shed 0.16%.
      • Those moves came on the back of  heightened tensions between the US and China over Pelosi’s visit to Taiwan.
  • Also, remarks by several Fed officials, that further rate hikes would be necessary to combat high inflation, spooked investors.


  • Yields spiked as traders exited US treasury positions following comments from FED governors that aggressive monetary policy remains on the table to combat multi-decade high inflation .
    • At the time of writing the US 10YT trading at 2.72%.
  • Across the pond, (a different picture)
    • Britain’s 10-year yield fell to 1.9%, at levels not seen since mid-May.
    • The Gilt tracking a general fall in bond yields, amid persistent concerns over slower growth and a recession specially in Europe.
    • Domestically, BoE governor Andrew Bailey opened the door for a 50bps hike in August.
    • It would be the largest since 1995 as inflation accelerated more than expected in June.


  • The Dow fell 402 to 32,396  (-1.23%)
  • The SP500 declined 27 to 4,091  (-0.67%)
  • The Nasdaq  declined 20 to 12,348  (-0.16%)

Futures Trading:

  • image : Trading economics


    • Asian markets mixed following Pelosi’s visit to Taiwan. The US house speaker, said China would not be allowed to dictate to US officials, especially where they can travel to.
      • In Japan, the Nikkei 225 rose 0.53% to close at 27,742, recouping some losses from the previous session.
        • Technology stocks leading the advance as investors shrugged off the increased US-China tensions and hawkish remarks from US Federal Reserve officials.
        • A sharp slide in the yen also boosted shares of export-oriented Japanese firms, while upbeat corporate earnings lifted sentiment further.
      • In Australia, the ASX 200 Index fell 0.32% to 6,976, retreating from seven-week highs, with banking stocks leading the decline.
        • Investor sentiment negative due to escalating US-China tensions over Taiwan and remarks from US Federal Reserve officials hinting at further rate hikes to combat high inflation.
        • Those moves came a day after the Reserve Bank of Australia lifted the cash rate in a widely expected move and tempered guidance on future hikes amid expectations of a slowdown in the economy.
        • Financial stocks led the decline, with the “Big Four” banks losing between 0.7% to 1.6%.  Reuters
    • Crude futures traded lower to $94/bl on Wednesday.
      • Energy markets remain volatile ahead of an OPEC+ meeting where it is expected to keep output largely unchanged.
        • Analysts citing supply challenges and concerns a potential global recession could hit energy demand.
      • In July, US President Joe Biden visited Saudi Arabia and called on OPEC to pump more crude.
        • Industry experts however believe this unlikely due to capacity constraints and inability of some member states to meet current output targets.
        • Markets also continued to fret about an economic slowdown that has countered signs of tight physical markets.
        • Elsewhere, escalating tensions between the US and China over House Speaker Nancy Pelosi’s visit to Taiwan kept market participants on edge.
          • Meanwhile, API data showed that US crude inventories expanded by 2.2 million barrels last week, defying expectations for a 600,000 barrel decline.
          • Official data from the EIA will be released on Wednesday. Energy News
    • Gold flatlined after a stellar rally, with the Yellow metal trading at $1764/oz.
      • The rally stalling after the jump in US yields following comments from Fed officials that inflation at 2% remains the priority.
      • Fed officials also confirming their determination to stick to an aggressive monetary policy path to achieve this objective.
      • The sharp rally in the US Dollar pressuring Gold prices.  Kitco metals.
  • The US Dollar advanced to 106.15 after a spike in yields.
    • The Buck advancing after Fed officials indicated resolve in their aggressive tightening path to bring inflation to reasonable levels.
      • San Francisco Fed President Mary Daly, said Tuesday that the FED still has a lot of work to do before it gets inflation under control.
    • In  a separate statement, Chicago Fed President Charles Evans also opened up the possibility of another large rate hike in September.
      • Noted hawk, St. Louis Fed President James Bullard, also jumped in, saying he  expects the central bank to keep raising interest rates to combat inflation.
      • He felt confident in his assessment that  the economy can achieve a soft landing.

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