Morning NOTE

GOOD MORNING

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

• USDZAR 16.6800
• EURZAR 17.0200
• GBPZAR 20.3600

SOUTH AFRICA   

• 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

GLOBAL MARKETS

Stocks:

• 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.

Bonds:

• 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.

YESTERDAY

• 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

OVERNIGHT HEADLINES

• • 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.