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Morning NOTE

7 July 2022


The ZAR continued to weaken in the face of a rampant US Dollar.


  • The Rand weakened to 16.8500, on the back of a US dollar rampage that left all other currencies in its wake.
    • The Euro and UK Pound suffering the most, the Euro declined due to ECB  monetary policy and Russian Gas supply concerns.
      • The Euro reaching a 20 year low.
      • The Pound on the back of political instability, reaching levels last seen in March 2020.
  • Locally the return to work of Eskom employees did nothing to support the local unit in the face of the Dollar rally.
  • Last night, the FED minutes showed a Fed intent on fighting inflation and issued a hawkish statement in terms of maintaining “ restrictive “ monetary policy.
    • However, it is important to note that the minutes was from last months FOMC meeting, when oil prices were at $120/bl and the economy remained strong.
      • Since then, we’ve had a negative GDP and an oil price decline back to $100/bl as well as a decline in bond yields. (US10YT at 2.85% vs 3.25%)
      • Thus : if the FED looks at the data, then we could assume Inflation might have peaked, and that the end of the month FOMC meeting, could be the Fed’s last ultra-hawkish meeting.
  • On the data front we have US ADP (private payrolls today at 14h15).
    • Historically, its been a poorly correlated to the actual payrolls data tomorrow.
    • Friday : 14h30 : US NFP + 268k expected vs +390k previous.
  • Today :
    • This morning we opening with a weaker Bias.
      • The local unit struggling in the face of global recessionary fears.
        • NB: We are also at the top of range after a 4% loss for the week.
      • Traders now waiting for tomorrows US jobs report, to give insight into future Fed policy .
        • Fears of a Fed induced recession, the reason for the rush to buy safe-have US dollars and treasuries yielding +/- 3%
        • Earlier the US 2Y yield exceed the 10Y ( NB: known as yield curve inversion and implying the likelihood of a recession).
    • A break of 16.7000, opens up a return back to the R16.5000/$, as “ weak” longs likely to liquidate their positions.
    • Likewise 16.8500 opens up 16.9400 (RISK OFF).
  • USDZAR :  Expect a range 16.5800-16.9400
    • Importers 16.6800-16.5800
    • Exporters 16.8100-16.9400
  • EURZAR :  Expect a range of 16.9400-17.1800
    • Importers 17.0200-16.9400
    • Exporters 17.1400-17.1800
  • GBPZAR :  Expect a range of 19.7200-20.1100
    • Importers 19.9400-19.7200
    • Exporters 20.0600-20.1100


  • USDZAR 16.7500
  • EURZAR 17.1000
  • GBPZAR 20.0000


  • Protesters in a city in South Africa’s north east blocked roads including a highway linking the country to Mozambique.
    • Reports of truckers blocking roads as they demonstrated against fuel prices rising to a new record.
    • The road between Mbombela, 350 kilometres east of Johannesburg, and White River has been obstructed by parked trucks.
    • The same happening on  the N4 highway connecting the city to the border with Mozambique and the port of Maputo
    • There is also a group of protesters moving around the blockades, he said.
  • With the on going energy crises, the DA’s public enterprises shadow minister said he’s written to ministers Pravin Gordhan and Gwede Mantashe.
    • He was asking them exactly how much electricity is being sold to other countries.
    • He said the country should be first in line as it faces a power crisis.
    • He said “The DA is determined to understand the nature of these contracts,
      • the veracity of these contracts and
      • the efficacy of these contracts so that we can put our country first in this regard.
      • We need to keep the lights on for our industries, for our citizens.” EWN
  • Eskom announced it is rolling down the power cuts.
    • This was hours after inking a deal with striking workers,
    • Eskom has announced the downgrading of the rolling power cuts from Wednesday but has warned that it will take weeks before the system recovers to pre-strike levels.
    • Businesses and households across the country have been hard-hit by stage 6 power cuts, which were implemented due to energy losses blamed on a wildcat strike at Eskom. IOL



  • Fed governors continued to discuss that ongoing increases in the fed funds rate would be appropriate.
  • They already backed another 50 or 75 basis points hike in July, according to minutes from the previous FOMC meeting.
  • Officials also noted that the US economic outlook warranted moving to a restrictive stance of policy if inflation remains high.
  • At the same time, they noted that policy firming could slow economic growth for a time.
  • Governors believe the return of inflation to 2% as critical to achieving maximum employment on a sustained basis.
  • US stock futures inched up in Asian trade on Thursday after the major averages finished higher in the regular session.
    • Traders more confident in the Fed’s ability to manage inflation.
  • In trading on Wednesday, the S&P 500 and Nasdaq Composite posted their third straight day of gains, rising 0.36% and 0.35%, respectively.
    • The Dow also climbed 0.23% for its second positive session in three.
    • Stocks climbed after the release of the Fed’s June meeting minutes, where officials reiterated a tough stance against inflation.
    • Committee members saying another 50- or 75-basis point move would “likely be appropriate” at the July 26-27 meeting.
    • Still, investors remain cautious about the market rebound amid mounting fears of a recession and the upcoming earnings season which is expected to stoke further volatility.


  • The US 10YT yield rebounded to 2.94% after the release of the FED minutes.
  • The minutes indicating the FOMC remains committed to fighting inflation, suggesting higher yields.
  • Strong ISM data provided some respite for bond bears, but the negative GDP print cannot be ignored.
  • However, Fed policymakers viewed that the current economic outlook made a more restrictive stance possible.


  • The Dow  added 69 points to 31,037
  • The SP500 added 13 to 3,845
  • The Nasdaq  gained 39 to 11,361

Futures Trading:

  • image : Trading economics


  • Asian markets all higher on the back of a late rally on wall street.

    • In Japan, the Nikkei 225 jumped 1.47% to close at 26,490, erasing losses from the previous session.
    • Traders taking cues from a positive overnight session on Wall Street, as investors assessed the latest Federal Reserve minutes.
    • Fed officials reiterated a tough stance against inflation, saying another 50- or 75-basis point move would “likely be appropriate” at the July 26-27 meeting.
  • In Australia the market also higher with the ASX 200 higher 0.81% to close at 6,648. The ASX erasing losses from the previous session amid a rebound in the materials sector.
    • Australian shares also tracked overnight gains on Wall Street as investors assessed the latest Federal Reserve minutes.
    • Heavyweight miners BHP Group (2.7%), Rio Tinto (4.1%) and Fortescue Metals (4.1%) led the rebound. Source :  TE
  • Crude oil and the WTI crude contract  fell toward $98/bl on Thursday and are down about 9% so far this week.

    • Oil remains under pressure from mounting fears of a global economic slowdown and an industry report showing a surprise jump in US crude stockpiles.
    • Escalating concerns that a looming recession will dampen energy demand has driven oil prices lower, despite signs that supply remains tight in the global market.
    • The American Petroleum Institute (API) also reported that US crude inventories expanded by about 3.8 million barrels last week, defying expectations for a 1.1 million barrel drop. Energy news
  • Gold traded below $1,750/oz and remains near its lowest levels in 9 months.

    • The yellow metal continues to be under pressure in the face of a rallying dollar.
    • In addition, increased recession fears and expectations of aggressive interest rate hikes by major central banks drove investors out of bullion and into the dollar.
    • Minutes from the Federal Reserve’s June meeting showed that policymakers agreed that borrowing costs will need to rise further to prevent inflation from becoming entrenched.
    • This resulted in ramping up bets of aggressive rate hikes and strengthening the appeal of the dollar compared to gold. Kitco metals
  • The US dollar traded just below 107 but remaining close to its highest levels in 20 years.

    • This was after minutes from the Fed’s June meeting pointed to consensus that interest rates need to rise further to prevent inflation from becoming entrenched.
    • Policymakers emphasized the importance of fighting higher consumer prices, even if it hampers growth.
    • This allowed for increases in bets that the Fed may hike its funds rate by 75bps this month and adding to the dollar’s safety appeal.
    • Demand for the greenback was also supported by the looming energy crisis in Europe and political turmoil in the United Kingdom. Forex news

    • The number of resignations from U.K. Prime Minister Boris Johnson’s government hit 50 on Thursday morning.
      • In what has been an unprecedented revolt against the embattled leader from within his own party continued.
        • After multiple resignations on Wednesday, more ministers quit early on Thursday morning
        • The 50th resignation came from George Freeman, a junior minister for science, research and innovation, at around 7.20 a.m. London time.
      • The prime minister has thus far refused calls to resign, vowing to “fight on.”
        • Johnson has been embroiled in a string of scandals and allegations of misleading the public,
        • but the final straw for many MPs involves Conservative lawmaker Chris Pincher.
      • The former deputy chief whip was suspended last week amid accusations that he drunkenly groped two men at a private members club. SOURCE : BBC

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