Morning NOTE

GOOD MORNING

The ZAR strengthened to 15.4000 after the Fed delivered on a 50bps hike but followed it up with Dovish language from Fed Chair Powell.

• USDZAR 15.5100
• EURZAR 16.4600
• GBPZAR 19.4700

SOUTH AFRICA   

• Ratings agency Moody’s released a report, where it expects Inflation in SA to rise to 8% this year.
  • The result will be an overshooting of the central bank’s target amid the global impact of the Ukraine conflict and rising US interest rates.
  • Moody’s said inflation was set to be higher than the South African Reserve Bank’s 3-6% target range this year.
  • It did however say, inflation would be falling in 2023 and 2024, with the central bank likely to continue to tighten monetary policy after it raised interest rates in March. IOL
• Tito Mboweni, SA’s former Reserve Bank governor and finance minster spoke at the annual PSG conference.
  • Mboweni reassured the financial industry that the current situation forces government and the SARB to be responsible and maintain stable monetary and fiscal policies.
  • He said policy frame works remain despite political opposition and added that the target is still to keep inflation between 3% and 6%.
  • He called for a steady rise in the repo rate locally due to higher global inflation and interest rates.
  • “When the US Fed raises interest rates, the Reserve Bank will follow.” Moneyweb
• Covid-19 restrictions were set to expire at midnight on Thursday.
  • However, the Department of Health announced limited regulations with effect from Thursday, just an hour before the remaining restrictions were due to expire at midnight.
    • The regulations, which are in effect from Thursday, have emphasised the public will still be required to wear a face mask when entering and being inside an indoor public place.
    • However, this does not apply to children at school. EWN

Stocks:

• US stock futures eased on Thursday after the major averages ended the previous session sharply higher following the announcement of a widely expected half-percentage point rate hike from the Federal Reserve.
  • Futures contracts tied to the three major indexes each shed about 0.1%.
• In regular trading on Wednesday, the Dow rose 2.81%, the S&P 500 gained 2.99% and the Nasdaq Composite jumped 3.19%.
  • The relief rally in stocks came as the Fed increased its benchmark interest rate by 50 basis points and said it would begin reducing its balance sheet in June.
  • Fed Chair Jerome Powell also clarified that the central bank is “not actively considering” a larger, 75 basis point rate hike, boosting investor sentiment further.

• US 10 Year Bond Yield was 2.94 percent on Thursday May 5, according to over-the-counter interbank yield quotes for this government bond maturity.
  • The yield at one stage trading above 3%, before Powell reversed course and traders liquidated bond shorts and entered new longs.
  • The Fed chair pushing back against the idea of 75 bps hikes in upcoming meetings, resulting in broad based risk rally. source: U.S. Department of the Treasury

• The DOW  added 932 to close at 34,061
• The SP500 gained 124 to close at 4,300
• The Nasdaq  gained 401 to close at 12,964
• image source: Trading Economics

• Asian markets higher with China and Australia following Wallstreet higher. Japan remains closed (3 day holiday), but the N225 futures continues to trade.
  • Chinese shares higher as markets gained momentum after a series of support pledges from Chinese authorities.
    • The Shanghai index rose 0.8% to 3,071 after returning from a holiday-extended weekend.
    • On the data front weak manufacturing and service activity data highlighted economic challenges in China.
    • Latest data showed Chinese factory and service sector activities contracted further in April as Covid lockdowns hit the country’s battered economy.
  • In Australia, the ASX 200 Index rose 0.5% to 7,340, taking its cues from sharp moves on Wall Street after the US Federal Reserve raised interest rates by a widely expected half-percentage point.
    • Fed Chair Jerome Powell emphasized the commitment to bring inflation down.
    • However, Powell said a 75 basis point rate hike is “not something the committee is actively considering”. TE
• Crude oil traded above $110/bl after rallying 5.3% in the previous session. Traders buying crude after the EU proposed an embargo on Russian crude in six months and refined products by the end of 2022.
  • The proposal also included a ban on all shipping, brokerage, insurance and financing services offered by EU companies for the transportation of Russian oil in a month.
    • With countries trying to find alternatives, supply remained at the front and centre.
  • Investors also look ahead to an OPEC+ meeting later today, where it is expected to stick to plans for a gradual ramp-up of monthly production.
    • OPEC Secretary General Mohammad Barkindo reiterated that it was not possible for other producers to replace Russian supply.
    • He also expressed concerns about slowing demand from top importer China due to COVID-19 lockdowns.  Source :Energy News
• Gold rallied above $1,900/oz, extending gains from the previous session. Bullion climbing after Fed Chair Jerome Powell assured Americans that the central bank will do what it takes to curb surging inflation.
  • He also acknowledged that this could risk economic pain.
  • The Fed raised interest rates by a widely expected 50 basis points  but pushed back against a larger 75 basis point rate increase.
    • The news causing the Dollar and Treasury yields to ease from recent highs and driving haven demand for bullion.
  • Analysts expect real yields to put downward pressure on gold prices in the second half of this year, while noting that concerns around inflation.
    • Gold also benefiting from safe-haven buying. Source   Kitco metals
• The US dollar declined after US treasury yields declined following the Fed’s less than hawkish comments.
  • The Buck falling below 103 index. Earlier Powell pushed back against a 75 bps hike in upcoming meetings, but re-iterated the Fed’s commitment to fighting inflation.
    • The Dollar trading weaker against all EMFX and majors.
• The Euro also recovered to trade above 1.0600 after trading below 1.0500 earlier in the week.
  • Still, the single currency remained close to low levels not seen since December of 2016.
    • Traders citing concerns about the impact of the Ukraine war on the European regional economy.
    • In addition, traders expect the ECB will raise interest rates slower than the FED and in turn make it difficult for the Euro to attract investors. FX news

RUSSIA / UKRAINE

• Russia’s new strategy involves attacking strategic Ukrainian supply lines.
  • The Lviv power station was among six railway facilities in central and western Ukraine targeted by Russian forces.
  • The coordinated strikes briefly knocked out power in parts of the region and caused long delays to more than 40 trains. CNN
• Ukrainian president Zelenskyy, in his nightly address said , Russia had forgotten all lessons from WW2.
  • The West is also expecting Russia to declare a full scale WAR on Ukraine.

• WORLD  515,354,713 / 6,269,587 / 470,075,490
• USA 83,356,490 / 1,023,513 / 80,836,418
• SA 3,808,368 / 100,407 / 3,663,153