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Morning NOTE

9 September 2022

GOOD MORNING

The ZAR weakened on the back of a weaker than expected SA current account that surprised the market with a deficit print of -R87bn.

SUMMARY

  • The Rand weakened on the back of a couple of negative factors.
    • The most telling being the negative SA trade balance at -R87bn
    • The data shocked the market with a -R87bn printed vs +R100bn expected and vastly lower than the previous R187bn.
  • Traders citing worsening economic conditions in Europe ( SA’s largest trading partner) as the primary reason.
    • Europe currently being hit with an energy crises, rising interest rates and record high inflation.
    • This likely to continues placing more pressure on SA exports as demand continues to fall in Europe.
  • On top of that, Jerome Powell did not disappoint and continued with his Hawkish rhetoric .
  • In addition, the ECB raised rates by 75 bps to counter inflation.
  • We now turn out attention to next week that WILL will be dominated by US inflation data.

Significant Market Data

TUESDAY : 

  • 14h30  : US CPI PREVIOUS 8.5% YOY
  • 14h30  : US CPI CORE PREVIOUS 5.9% YOY

A softer print likely to support Risk assets and likewise a higher print, supportive of the FED policy and we can see some more weakness.

Today

  • This morning we opening at 17.4200, that is firmly inside yesterday’s range of (17.2000-17.5400)
    • A large overnight range leads me to believe, we are range bound for the session.
    • The ZAR ignoring the Risk rally after the SP500 spiked above 4,000 as domestic factors starting to dominate investor sentiment.
  • We expect a rather large range of 17.3300 to 17.6700.
  • The weakness remains to the topside, as FED policy remains the key drive for future Rand direction.

Expected Ranges

  • USDZAR : Expect a range 17.1700-17.6700
    • Importers 17.3300-17.1700
    • Exporters 17.5100-17.6700
  • EURZAR : Expect a range of 17.3600-17.6500
    • Importers 17.4600-17.3600
    • Exporters 17.5600-17.6500
  • GBPZAR : Expect a range of 19.8700-20.5500
    • Importers 20.0700-19.8700
    • Exporters  20.3300-20.5500

OPENING RATES

  • USDZAR 17.4200
  • EURZAR 17.5300
  • GBPZAR 20.2000

SOUTH AFRICA   

  • President Cyril Ramaphosa has expressed his condolences to newly ascended King Charles, following the death of his mother and Britain’s longest-serving monarch, Queen Elizabeth II, on Thursday.
    • The British royal family said that she had died peacefully at Balmoral at 2.30PM, UK time.
    • She was 96.
      • Her death comes a year and five months after that of her husband, Prince Phillip, Duke of Edinburgh, who died aged 99. Reuters
  • The Public Protector has racked up legal bills of more than R146 million since she came to office in 2016.
    • This figure has been revealed at Busisiwe Mkhwebane’s impeachment inquiry, which resumed in Parliament on Thursday morning, after a nearly two-week long break. EWN
  • Striking Public Utility Transport Corporation (Putco) bus drivers have threatened to intensify their protest at various depots in Johannesburg until their demands were met.
    • They have embarked on an unprotected strike since last week, demanding a 6% increase.
    • The strike has affected at least 20,000 commuters who’ve been forced to make other travel arrangements mostly to get to work and school. Source News 24

GLOBAL MARKETS

  • US stock futures traded higher on Friday as Futures contracts to the three major indexes were all trading in positive territory.
    • In regular trading on Thursday, the S&P 500 rose 0.66%, while the Dow and Nasdaq Composite each gained 0.6%, putting all three benchmarks on track to snap a three-week losing streak.
    • Traders digested Federal Reserve Chair Jerome Powell’s hawkish remarks, saying the central bank will continue tightening policy “until the job is done.”
  • Markets largely took Powell’s comments in stride as traders have already priced in another supersized 75 basis point rate increase this month, and further tightening down the line.
  • Investors now look ahead to August inflation data due for release next week.

Bonds:

  • The yield on the 10-year US Treasury note consolidated around 3.3%, not far from an over 10-year peak of 3.5% touched in June.
  • The Federal Reserve seeks to rein in soaring inflation by hiking interest rates further even as growth slows.
  • The market continues to price in 75 bps on the back of Powell’s comments.

 

YESTERDAY

  • The Dow gained 193 to 31,774
  • The SP500 gained 26 to 4,006
  • The Nasdaq  added 70 to 11,862

OVERNIGHT HEADLINES

  • Asian markets traded higher across the region following a rally on Wallstreet after Stocks closed higher after Jerome Powell’s speech.
  • The Fed chair reaffirmed the bank’s commitment to fight  inflation.
    • In Japan, the Nikkei 225 climbed 0.53% to close at 28,215 with nearly all sectors participating in the rally as investors shrugged off fresh hawkish remarks from Federal Reserve Chair Jerome Powell.
      • Japanese shares also tracked overnight gains on Wall Street, with markets largely taking Powell’s comments in stride as traders have already priced in another supersized 75 basis point rate increase this month.
    • In Australia, the ASX 200 Index gained 0.66% to close at 6,894 as higher iron ore and other metals prices lifted local mining shares.
      • Meanwhile, concerns about slowing global economic growth kept sentiment in check, as major central banks continue to aggressively raise interest rates to combat inflation.
      • Gains in the mining sector were led by BHP Group (3.2%), Fortescue Metals (6.1%) and Rio Tinto (2.7%).
      • The benchmark index ended the week 1% higher, reversing sharp losses sustained earlier in the period driven by recession fears. Reuters
         
  • Crude oil crude futures flat lined around  $83.5/bl. Prices however headed for the second straight weekly drop on a weakening demand outlook.
    • The theme remains central banks’ aggressive monetary tightening and top importer China’s Covid-19 curbs.
    • The US benchmark is down about 4% so far this week, sliding at one point to near eight-month lows.
    • Oil’s decline came despite a surprise output cut by OPEC+, Russia’s threat to cut energy flows to countries that support a price cap on its crude and a weaker outlook for US supply. Bloomberg
       
  • Gold prices rose toward $1,720/oz benefitting from a pullback in the dollar as investors digested Federal Reserve Chair Jerome Powell’s latest remarks about inflation.
    • Powell said the Fed is “strongly committed” to fighting inflation, but markets took his comments in stride as traders have already priced in another supersized 75 basis point rate hike at this month’s policy meeting.
    • The European Central Bank also delivered a historic 75 basis point rate increase on Thursday and signaled further tightening as it aims to get ahead of inflation despite heightened recession risks.
    • Bullion having lost its shine as a hedge against inflation and economic uncertainty as rising interest rates dented bullion demand, trading near 2 year lows. Kitco metals
       
  • The US dollar traded below 109 on Friday. The Buck snapping a three-week advance, as traders took some profits following a strong rally.
    • Traders also assessing Federal Reserve Chair Jerome Powell’s latest remarks about inflation.
    • Powell said the Fed is “strongly committed” to fighting inflation and cautioned strongly against prematurely loosening policy.
      • However, markets largely took his remarks in stride as traders have already priced in another supersized 75 basis point rate hike at this month’s policy meeting.
      • His comments were also offset by ECB’s decision to raise its policy rate by a historic margin of 75 basis points on Thursday.
        • The ECB also signalled further tightening as it aims to get ahead of inflation despite heightened recession risks.
    • Investors now look ahead of US CPI data for August to be released next week, which will be the last inflation report before this month’s policy meeting. FX news

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