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Morning NOTE

3 June 2022

GOOD MORNING

The ZAR recovered to reach 15.4300 in overnight trading on the back of a strong bounce on Wall-Street.

SUMMARY

  • The Rand rallied following a remarkable switch to Risk after US equities staged a strong recovery.
    • The moves came as investors took advantage of lower valuations and digested data which showed the slowest job creation pace of the pandemic-era recovery.
    • Earlier Fed Vice Chair Lael Brainard said the Fed is unlikely to pause its interest rate hikes anytime soon amid efforts to bring inflation down to the 2% target.
  • Analysts however point to a dramatic drop in Federal tax collections, saying the economy might be slowing faster than anticipated, and that today’s Jobs report might be worse than expected.
    • Tax collections are like the PAYE collected in SA and the US government reports on it on a monthly basis.
  • Earlier in the day, private payrolls disappointed at 128,000 vs 300,000 expected also indicating a slowdown in US job growth.
Data:
  • Today, we have the US Non-farm payrolls report at 14h30 SA time.
    • We expecting 325,000 vs 428,000 previous.
    • A lower number would likely lead to a risk rally as it would indicate a slowdown is happening and the FED would have to slow down.
  • Today: Expect some ZAR gains as stock futures rebound after the rally on Wallstreet
    • The poor ADP jobs report fuelling best that today’s NFP will be weaker than expected and cause a re-think by the Fed.
    • This would be considered to be risk positive and ZAR strength.
    • A break of 15.5500 target 15.7000
      • However likely to test 15.4200, with 15.3600 remaining as a strong bid for Dollars.
      • All of  this will present good opportunities for importers to exact cover ahead of Friday’s data.
  • USDZAR :  Expect a range 15.3300-15.5500
    • Importers 15.4300-15.3300
    • Exporters 15.4800-15.5500
  • EURZAR :  Expect a range of 16.4000-16.8100
    • Importers 16.5300-16.4000
    • Exporters 16.7200-16.8100
  •  GBPZAR :  Expect a range of 19.2500-19.7500
    • Importers 19.3300-19.2500
    • Exporters 19.5300-19.7500
OPENING RATES
  • USDZAR 15.5400
  • EURZAR 16.6400
  • GBPZAR 19.4400

SOUTH AFRICA   

  • The news of President Cyril Ramaphosa potentially being involved in criminal behaviour is something that many South Africans may find shocking or, at least, extremely disappointing.
    • President Cyril Ramaphosa has confirmed a robbery at his farm in Limpopo in 2020, but says there is no basis for the claims of criminal conduct made against him by former spy boss Arthur Fraser.
    • Fraser laid a criminal complaint against Ramaphosa on Wednesday, accusing him of breaching the Prevention of Organised Crime Act by not reporting the robbery.
    • Suspects were allegedly apprehended after stealing over $4 million hidden on the property. EWN
  • The DA and the EFF managed to win wards from the ANC in by-elections on Wednesday in Gauteng and the Northern Cape.
    • The DA celebrated its victory in Kareeberg in the Northern Cape as an indicator that voters were choosing not to split their votes by supporting smaller political parties.
    • The ANC managed to hold on to two wards in Mpumalanga and KwaZulu-Natal. News24
  • THE ANC has called on business to invest unconditionally in a bid to rebuild the economy of the country.
    • ANC Head of Economic Transformation, Mmamoloko Kubayi, was on Thursday addressing the Progressive Business Forum session on the policy documents.
    • Kubayi said the country was facing many challenges and the Ukraine conflict has impacted on the fuel prices, seeing them surge over the last few months, following the start of the war in February.
    • This subsequently affected the price of food. IOL

GLOBAL MARKETS

Stocks:

  • Wallstreet traded higher, after three major averages snapped two-day losing streaks in regular trading on Thursday.
    • This morning US stock futures edged higher on Friday after a technology-led rally on Wall Street, as investors await a key jobs report to guide the outlook for the economy and monetary policy.
  • Dow and S&P 500 futures each added about 0.15%, while Nasdaq 100 futures gained 0.2%.
    • Mega-cape tech names led the advance, with strong gains from Tesla (4.7%), Amazon (3.2%), Nvidia (6.9%), Apple (1.7%), Meta Platforms (5.4%) and Alphabet (3.3%).
    • The moves came as investors took advantage of lower valuations and digested data which showed the slowest job creation pace of the pandemic-era recovery.
  • On the negative side, Federal Reserve Vice Chair Lael Brainard said Thursday the central bank is unlikely to pause its interest rate hikes anytime soon amid efforts to bring inflation down to the 2% target.
Bonds:
  • The  US 10-year yield traded above 2.9%, trading near a two-week high on concerns over a potential reacceleration in global inflation and an even more aggressive monetary tightening from the Federal Reserve.
    • Rising prices around the world remain a key concern for investors, with euro zone inflation data coming in much higher than expected on Tuesday.
      • Fed member, James Bullard noted on Wednesday that it is “too early” to call a peak in inflation.
      • He warned  that in past periods of high inflation, price pressures receded for months but then reasserted themselves.
      • Investors now look ahead to US nonfarm payrolls and inflation data for May for clues on the health of the economy and to guide the outlook for monetary policy.
    • Earlier FED vice chair Brainard said the FED would hike as long as it takes to get inflation back inside the 2% band. source: U.S. Department of the Treasury
YESTERDAY
  • The Dow  rallied 435 to 33,428 + 1.33%
  • The SP500 gained 75 to 4,176  + 1.84%
  • The Nasdaq  gained 322 to 12,316  + 2.69%
Futures Trading:
  • image : Trading economics
OVERNIGHT HEADLINES
  • Asian markets all tracking higher following the rally on WALLSTREET.
    • In Japan, the Nikkei 225 jumped 1.3% to close at 27,762 and hitting its highest in 2 months, following a strong overnight finish on Wall Street.
      • Global equities rallied as investors saw value in technology shares and other beaten-down names in this year’s pullback.
    • However, analysts warned that investors can expect a bear market bounce rather than the start of a bull run amid economic and policy uncertainties.
      • Japanese tech stocks tracked their US peers higher, with notable gains from SoftBank Group (2.2%).
      • Investors now look ahead to the release of US jobs data to guide the outlook for US monetary policy.
    • In Australia, the ASX 200 Index jumped 0.9% to close at 7,239 on Friday, erasing losses in the previous session and taking cues from strong overnight gains on Wall Street.
      • Global equities rallied as investors saw value in technology shares and other beaten-down names in this year’s pullback.
      • Australian tech stocks tracked their US peers higher, with notable gains from Xero (1%), while heavyweight miners also advanced on higher iron ore prices, including BHP Group (2.5%). Trading economics
  • Crude oil WTI crude futures steadied above $116 per barrel on Friday.
    • Gains from the previous session, after a keenly anticipated OPEC+ meeting delivered only a modest increase in output despite speculations of a bigger supply boost.
      • The group of major producers decided to increase output by 648,000 barrels per day in July and August instead of the previously agreed 432,000 bpd.
    • The move that was seen as hardly enough to compensate for lost supply from Russia.
      • There had been speculation that the Saudis were preparing to pump significantly more as part of a reset of relations with the US.
      • suggestions that Russia might be exempted from OPEC+’s monthly supply agreements, but both did not happen.
      • WTI futures are up nearly 2% so far this week and were set for a sixth weekly advance. Energy news
  • Gold traded to $1,870/oz its highest in nearly a month, buoyed by recent weakness in the dollar.
    • The move put bullion on track for a 2nd week of gains.
      • The dollar tumbled overnight as risk appetite returned to the markets and following data which showed US private payrolls rose less than expected last month.
    • Uncertainties surrounding the war in Ukraine and fears that high inflation and aggressive interest rate hikes might tilt the global economy into a recession also drove safe-haven demand for the metal. Kitco metals
  • The US Dollar declined to 101.70, after the Greenback facing pressure from a strong rally in risk assets and uncertainties about the Federal Reserve’s monetary tightening plans.
    • Overnight data showed US private payrolls rose less than expected last month, while investors await US non-farm payrolls data due later today.
    • Markets are priced for two 50-basis point rate increases in June and July but the dollar has been pushed around this week by uncertainty about what happens after that.
    • Supporting the Dollar were 2 policymakers indicating that the Fed is likely to continue tightening monetary policy until inflation is back inside the 2% Fed level.  Fx news
  • Eurozone slow down and rising inflation ?

    • The trade surplus in Germany narrowed sharply to €1.3 billion in April of 2022.
      • It was the lowest since 1992, as imports surged 25.2% year-on-year to €120.9 billion, as energy prices remain elevated while exports rose at a much smaller 9.2%.
        • Exports to Russia accounted for €0.8 billion only.
      • On a seasonally adjusted basis, total shipments were up 4.4% while imports increased 3.1%.
        • Sales to Russia dropped by 10% in April, after sinking 60% in March due to sanctions imposed.
      • Most shipments were sent to the EU (4.2%) and the US (7.7%).
COVID-19 SOURCE https://www.worldometers.info/coronavirus/ Cases / Deaths / Recoveries
  • World 534,235,940 / 6,317,638 / 505,159,409
  • USA 83,271,283 / 1,032,862 / 82,394,184
  • SA 3,963,394 / 101,250 / 3,821,550
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