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Morning NOTE

5 July 2022


The ZAR consolidated during lackluster trade to remain around 16.3000 ahead of today’s Eskom/Union announcement.



  • The Rand remained in tight range of 16.2500 to 16.3500, during the US independence day holiday and ahead of today’s Eskom/Union announcement.

    • In addition the market is awaiting the FOMC minutes from the previous Fed meeting.
    • What is of importance is the tone of the language and how Hawkish/ Dovish certain board members were in their discussions.
    • Up to now the FED has insisted they are data dependent and would like to get inflation down to 2%.
    • Up to now we have seen a massive slowdown in Consumer spending, a drop in oil prices as well as a contraction in GDP.
    • This all points to a slowdown in economic activity that could result in a “natural” drop in inflation and might slow down the Fed.
  • In addition, we have Non-farm payrolls on Friday, and once again a slowdown could be RISK ASSET SUPPORTIVE.
    • The US10YT at 2.93%
  • Locally, ESKOM and the UNIONS likely to announce a decision on the labour/wage dispute and any positive news will be ZAR supportive.
    • In addition, Public enterprises minister Pravin Gordhan has been attacked for not clarifying the issues at Eskom and the seriousness of the problems.

On the data front:

  • Wednesday :  20H00 : US FOMC MINUTES.
  • Friday :  14H30 : US NON-FARM PAYROLLS :  +270K EXPECTED  vs 390k previous
  • Today :
    • This morning we opening with a stronger Bias.
    • Expect a range bound session, but with the potential for a stronger ZAR (Eskom dependent) and the rally in global stocks.
    • The likely hood of positive announcement likely to send the local unit stronger as the country struggles to operate with rolling-blackouts.
  • A test of either side likely based on the ESKOM negotiations.
    • Likewise a break of 16.2500, opens up a swift return back to the figure R16/$.
    • Likewise 16.3800 opens up 16.5000
  • USDZAR :  Expect a range 16.2000-16.4300
    • Importers 16.2800-16.2000
    • Exporters 16.3700-16.4300 
  • EURZAR :  Expect a range of 16.8900-17.1800
    • Importers 16.9800-16.8900
    • Exporters 17.0700-17.1800
  • GBPZAR :  Expect a range of 19.6400-20.0100
    • Importers 19.6900-19.6400
    • Exporters 19.8300-20.0100


  • USDZAR 16.3200
  • EURZAR 17.0400
  • GBPZAR 19.7700


  • ANC, NEC members said that in spite of a report from Public Enterprises Minister Pravin Gordhan on issues plaguing Eskom.
    • They said there were still no clarity as to why he failed to provide any new or sufficient information about the power cuts.
    • Insiders said it was the same old story with corruption, state capture and sabotage being blamed for the increase in power cuts across the country.
    • Gordhan has also laid the blame for the power provider’s current woes on striking employees. EWN
  • The National Union of Mineworkers and the National Union of Metalworkers of South Africa plan to convene a shop steward council on Tuesday.
    • The meeting is to receive feedback from branches on the proposal that could help lift some of the pressure on the national grid.
    • Eskom employees are expected to make a decision on a new wage by Tuesday before the central bargaining forum reconvenes. EWN
  • The government is facing growing pressure to review the current fuel price model as motorists face yet another massive price hike for petrol and diesel.
    • The Energy Department announced the latest price increase on Monday.
    • From midnight on Tuesday, you will have to fork out a extra R2.37c for a litre of petrol, while if you use diesel, then you will part with R2.31c.



  • US stock futures rose in Asian trade on Tuesday after the major averages declined again last week.
    • After the US holiday, investors returned from a holiday-extended weekend.
    • The moves come as the major indexes posted their fourth week of losses in five as an increasing risk of a recession.
    • The move driven by the Fed’s aggressive fight against surging inflation, continued to weigh on markets.
    • Investors now look ahead to the minutes of the last central bank meeting and the monthly jobs report to gauge the health of the economy and the likely path for US monetary policy.


  • The yield on the US Treasury 10-year note slipped below the 2.9% mark on Friday.
    • It was a level not seen in a month, as investors rushed to safe-haven assets.
    • Traders citing fears that the Fed’s aggressive tightening to tame sky-high will eventually tip the US economy into a recession.
  • Weak economic data this week fueled those concerns further;
    • i.e. namely signs of a slowdown in consumer spending, with morale among consumers at a 16-month low and worse-than-expected GDP figures.
  • In Europe, a worsening growth outlook and record inflation prompted a similar rush for government debt, with Germany’s 10-year Bund yield tumbling below 1.5% for the first time in four weeks.
  • US stock and bond markets were closed on Monday for the Fourth of July holiday.



Futures Trading:

  • image : Trading economics


  • Asian markets higher after the US long weekend in anticipation of a more dovish Fed ahead of the minutes as well as payrolls on Friday.
    • In Japan, the Nikkei 225 rose 1.03% to close at 26,423, extending gains from the previous session. Investors also upbeat about June services activity data which expanded at the fastest pace since October 2013.
      • Technology shares led the advance, with strong gains from SoftBank Group (1.8%).
  • In Australia, the Reserve Bank of Australia raised interest rates by another 50 bps to 1.35% during its July 2022 meeting.
    • The move followed June’s 50-bps hike and a 25-bps increase in May, bringing the cash rate to a level not seen since May 2019.
    • The board reiterated huge monetary support was no longer needed due to the strength of the economy and the current inflation pressures.
    • The central bank also viewed that the labour market stayed strong, as employment remained at its lowest in near 50 years while a further drop in unemployment is expected ahead.
    • The committee reaffirmed its commitment to doing what is necessary to ensure inflation returns to target while paying attention to the global outlook. source: Reserve Bank of Australia
  • Brent Crude oil declined back to $113/bl.
    • Stalling its recent advance to around $114.5 /bl, as persistent supply-side issues outweighed concerns a recession will eventually hurt energy demand.
    • In the latest developments, Norwegian offshore workers began a strike on Tuesday that is expected to cut around 130,000 barrels or 6.5% of the country’s daily oil production. Source Reuters.
    • Oil also remains nearly 50% up this year as the global economic recovery coincided with disrupted Russian supply due to the war in Ukraine.
      • However, oil remains under pressure in the short run as signs of an impending US recession, driven by the Federal Reserve’s aggressive fight against inflation, prompted a wave of selling in commodities.
    • Investors are also tracking China’s slow emergence from virus restrictions amid recurring outbreaks throughout the country.
  • US dollar remains well bid above 105 level and in turn near its highest levels since October 2002.
    • Investors now look ahead to the FOMC minutes of the last central bank meeting and the monthly jobs report for clues on the likely path for US monetary policy.
    • Data released Friday highlighted such concerns, showing US manufacturing activity slowed more than expected in June.
    • Meanwhile, tighter financial conditions across major economies raised fears of a global recession, prompting investors to divest out of riskier assets into the safety of the dollar.
    • The buck remains well supported with bets that the Fed will continue to aggressively raise interest rates to curb surging inflation.
  • Gold flatlined around the $1806/oz level.
    • Traders citing impending interest rate hikes from major central banks have all but dampened bullion’s appeal.
    • Federal Reserve policymakers cemented expectations for further monetary tightening, signalling another 75 basis point rate hike in July to arrest surging prices.
    • The European Central Bank is also expected to start raising interest rates in July and bring borrowing costs into positive territory in the third quarter.
    • Meanwhile, tighter financial conditions across major economies raised fears of a global recession, pushing investors towards the safety of the dollar and prompting a broad decline in commodity prices.
  • Ukraine-Russia
    • The west continues to find and explore different ways of sanctioning the Russian government and economy because of the WAR with the Ukraine.
      • U.S. President Joe Biden presented the idea of an oil price cap to the rest of the G-7 leaders and his counterparts agreed to look at how to do it.
      • Energy analysts have questioned exactly how the G-7 can impose a price ceiling for Russian oil.
      • Most warning that the plan could backfire if key consumers are not involved, and time may be running out to make it workable.
      • Russia’s Deputy Prime Minister Alexander Novak said Wednesday the idea could push oil prices even higher. CNBC

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