Morning Note – 2 August 2023

Morning Note

2 August 2023

Market Open

Support & Resistance Levels

Market Movement Today

Data This Week

Market Highlights

Market Close

South Africa

Global Markets

Overnight Headlines

Market Open

USDZAR: 18.3000

DOLLAR: 102.24

EURUSD: 1.0981

SP500:  4.561

GOLD: 1947

US10YT: 4.03%

Support & Resistance Levels

The ZAR retreated on the back of rebound in the Dollar ahead of key data this week.

Today’s Market Support and Resistance Levels:

Market Movement Today

The ZAR weakness continued on the back of a Risk-off Dollar rally.

  • The Rand crashing through the R18/$ support handle to reach R18.37/$ in early trading.
  • Risk assets lower across the board , following FITCH ratings agency’s downgrade of the USA.
    Fitch cutting the USA debt ratings from AAA to AA+ .
    The ratings agency citing “the expected fiscal deterioration over the next three years,
    a high and growing general government debt burden, and the erosion of governance” relative to peers.

  • Stocks sharply lower with the Sp500 lower and the Japanese Nikkei lower -2.58%.
    Investors booking profits, ahead of today’s ADP jobs report as well as Yield spike above 4%.
    The environment remarkably different from a week ago as investors once again opting for the Dollar.
  • We except the ZAR weakness to continue on the back of a resurgent ( safe -haven) Dollar, but advise caution ahead of Friday’s NFP report.
  • The BOE also expected to hike by 25bps tomorrow also likely to pressure risk assets.
  • Technically , USDZAR at its 50% retracement level, and a break likely to target 61.8% at 18.5000

Trade : BUY USDZAR on DIPS 

Data This Week

Monday

08H00 SA M3 MONEY SUPPLY ACTUAL 11.15% VS 9.85% EXPECTED

08H00 SA PSCE ( PRIVATE SECTOR CREDIT EXT) 6.25% ACTUAL VS 6.25% EXPECTED

11h00 EU GDP 0.5% EXPECTED VS 1.1% PREVIOUS YOY

11h00 EU CPI INFLATION 5.3% EXPECTED VS 5.5% PREVIOUS YOY

11h00 EU CPI CORE INFLATION 5.4% EXPECTED VS 5.5% PREVIOUS YOY

14H00 SA BALANCE OF TRADE EXPECTED 11.85% VS 10.2% PREVIOUS

16H30 US DALLAS MANUFACTURING INDEX -18 EXPECTED VS -23.2 PREVIOUS

Tuesday

01H00 AUSTRLIAN CENTRAL BANK (RBA) RATE DECSION +25BPS EXPECTED FROM 4.1% TO 4.35%

11H00 EU UNEMPLOYYMENT RATE 6.5% UNCHANGED EXPECTED.

11H00 SA MANUFACTURING PMI 46.8 EXPECTED VS 46 PREVIOUS

16H00 US ISM MANUFACTURING PMI 46.8 EXPECTED VS 46 PREVIOUS

16H00 US JOLTS JOB OPENINGS 9.62M VS 9.82M

16H00 US ISM MANUFACTURING PRICE 42.5 EXPECTED VS 41.8 PREVIOUS

Wednesday

***14H15 US ADP EMPLOYMENT CHANGE 189K EXPECTED VS 497K PREVIOUS

Thursday

09H15 SA S&P GLOBAL PMI 49 CONSENSUS VS 48.7 PREVIOUS

11H00 EU PPI YOY -3.1% VS -1.5% PREVIOUS

13H00 UK BANK OF ENGLAND RATE DECISION +25BPS FROM 5% TO 5.25%.

13H00 US BOE MPC MEETING MINUTES

14H30 US WEEKLY JOBLESS CLAIMS EXPECTED 227K VS 221K PREVIOUS

16H00 US SERVICES PMI 53 EXPECTED VS 53.9 PREVIOUS

Friday

14H30 US NON FARM PAYROLLS 200K EXPECTED VS 209K PREVIOUS

14H30 US UNEMPLOYMENT RATE 3.6% EXPECTED UNCHANGED

Market Highlights

The Rand lost more ground against a recovering Dollar.

 

 

 

 

 

 

 

The local unit trading above R18.30/$ on the back of Dollar demand.

Traders wary of the upcoming Jobs data with ADP in the crosshairs later today.

Markets are pricing for a 189k increase in private payrolls and anything higher likely to send the Dollar higher.

Rising Dollar yields also supportive of the US dollar with the benchmark 10YT at 4.03%.

Risk sentiment also largely on the back foot on Wednesday

News broke ratings agency Fitch, downgraded the US’s credit rating from AAA to AA+.

  • The ratings agency citing “the expected fiscal deterioration over the next three years,
    a high and growing general government debt burden,
    and the erosion of governance” relative to peers.

Long ZAR positions under pressure and stops triggered above R18/$ sending the Dollar higher.

We expect more of the same but caution advised ahead of the ADP (private payrolls) at 14h15

 

Market Close

DOW
+71 to 35,630

SP500
-12 to 4,576

NASDAQ
-62 to 14,238

Overnight Trading

image: Trading economics

South Africa

Coal

Global demand for coal is bringing mayhem to SA towns.

Miners have no choice but to use trucks to cash in on record demand.

SA became one of Europe’s main alternatives to Russian coal following Moscow’s invasion of Ukraine in February 2022.

Suppliers are finding new buyers in India and China.

It’s not possible to swap roads for rail because Transnet’s Freight Rail is crumbling.

Miners have no choice but to use trucks to cash in on record demand.

 

Source: Moneyweb

 

 

 

SA-US Relations

Minister of Trade and Industry Ebrahim Patel admitted that the United States (US) did question South Africa’s relations with Russia.

The discussions amid the ongoing war in Ukraine, while discussing a possible extension of the African Growth and Opportunity Act (Agoa).

Earlier in July, Patel, alongside Minister of Finance Enoch Godongwana, visited Washington to discuss the state of trade agreements between the two countries.

South Africa asked the US to consider an early extension of Agoa, set to expire in 2025.
o Patel said South Africa cannot afford to lose out on Agoa’s benefits.

“The United States is our second largest country trading partner. At a country level, it follows China, which is our biggest trading partner.

We sell about $15 billion worth of products to the United States.”

South Africa faces losing the benefits of the trade programme as a result of its alleged relationship with Russia and its “fence-sitting” on Russia’s invasion of Ukraine.

 

Source: Moneyweb

Global Markets

Stocks lower after US debt Downgrade

• US stock futures fell on Wednesday after Fitch downgraded the US’s credit rating from AAA to AA+.
• The ratings agency citing “the expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance” relative to peers.
• Futures contracts tied to the three major indexes were all down at least 0.2%.

• On Tuesday, the Dow gained 0.2%, while the S&P 500 and Nasdaq Composite dropped 0.27% and 0.43%, respectively.
• Those moves came as investors reacted to mixed corporate earnings results, though about 82% of S&P 500 companies that have reported earnings so far posted positive surprise, according to FactSet.

Yields rebound on back of resilient US economy.

• The yield on the US 10-year Treasury rose above the 4% mark.
• The benchmark approaching levels last seen in November 2022 and adding 20bps since the start of the third quarter.
• Traders citing evidence of a resilient economy strengthened the case for the Federal Reserve to remain hawkish.
• The US GDP expanded by 2.4% in the second quarter, surpassing market expectations of a 1.8% increase.
• Additionally, jobless claims declined to multi-month lows in the end of July and the JOLTS pointed to another period of solid job offers.
• Key data this week will confirm the trend of tightness in the labour market.
• The results underscored the economy’s strength despite the Fed’s aggressive tightening campaign.
• All of this backing bets that the central bank may deliver another rate hike this year.

Overnight Headlines

Asian Markets

Asian equity markets lower after US debt downgrade.
Fitch downgraded the US’s credit rating from AAA to AA+.

In Japan, the Nikkei 225 dropped 1.1% to around 33,100, breaking a two-day rally.

Markets weighed down by weak global sentiment after Fitch downgraded the US’s credit rating due to fiscal and governance-related uncertainties.

Investors also continued to track the yen and JGB yields after the Bank of Japan made adjustments to its yield curve control policy at last week’s meeting.

Technology stocks led the decline, with notable losses from Advantest (-3.2%), Tokyo Electron (-2.4%), SoftBank Group (-1.2%).

 

Source Reuters

Energy

Oil prices higher US inventory drop.

US WTI crude futures jumped more than 1% to above $82 per barrel on Wednesday, hitting the highest levels in over three months.
An industry report showed that US crude inventories declined by 15.4 million barrels last week.

The latest figure far exceeded market expectations for a 1.37 million barrel draw,
and if confirmed by official data due later on Wednesday, it would mark the largest drop in US crude inventories in over four decades.

Oil prices have also been rallying since late June as Saudi Arabia’s voluntary output cuts tightened global supply.

The de facto OPEC leader is also expected to announce an extension of its 1 million barrels per day production cut through September at the group’s meeting on Friday.

Meanwhile, the USA pulled an offer to buy 6 million barrels of oil for the US Strategic Petroleum Reserves to counter rising energy prices.

Source: Gulf news

Metals

Precious metals losing ground after US yields spike.

Gold fell to around $1,946/oz on Tuesday, struggling to gain momentum as investors awaited more data to guide the economic and monetary policy outlook.

The Fitch downgrade of the USA to AA+ from AAA , so far being ignored by traders.

US 10Y’s back above 4% and supporting the recent Dollar at the expense of precious metals.

Investors now look ahead to the key US monthly jobs report later in the week.

Meanwhile, the Reserve Bank of Australia kept its policy rate unchanged at 4.1% during its August meeting, defying market expectations for a 25 basis point rate hike.

Source: Kitco

Currencies

Dollar higher on the back of higher US yields

The dollar index appreciated to 102.3 on the first day of August.

The Greenback, trading at high levels not seen in nearly a month, as risk appetite declined.

Investors also digesting fresh economic data and the monetary policy outlook.

The ISM manufacturing PMI for the US pointed to a ninth-straight month of contraction in the factory sector.

The payrolls report due Friday is set to provide further clues on the labour market strength.

Source : Forexnews

Asian Markets

Asian equity markets lower after US debt downgrade.
Fitch downgraded the US’s credit rating from AAA to AA+.

In Japan, the Nikkei 225 dropped 1.1% to around 33,100, breaking a two-day rally.

Markets weighed down by weak global sentiment after Fitch downgraded the US’s credit rating due to fiscal and governance-related uncertainties.

Investors also continued to track the yen and JGB yields after the Bank of Japan made adjustments to its yield curve control policy at last week’s meeting.

Technology stocks led the decline, with notable losses from Advantest (-3.2%), Tokyo Electron (-2.4%), SoftBank Group (-1.2%).

 

Source Reuters

Energy

Oil prices higher US inventory drop.

US WTI crude futures jumped more than 1% to above $82 per barrel on Wednesday, hitting the highest levels in over three months.
An industry report showed that US crude inventories declined by 15.4 million barrels last week.

The latest figure far exceeded market expectations for a 1.37 million barrel draw,
and if confirmed by official data due later on Wednesday, it would mark the largest drop in US crude inventories in over four decades.

Oil prices have also been rallying since late June as Saudi Arabia’s voluntary output cuts tightened global supply.

The de facto OPEC leader is also expected to announce an extension of its 1 million barrels per day production cut through September at the group’s meeting on Friday.

Meanwhile, the USA pulled an offer to buy 6 million barrels of oil for the US Strategic Petroleum Reserves to counter rising energy prices.

Source: Gulf news

Metals

Precious metals losing ground after US yields spike.

Gold fell to around $1,946/oz on Tuesday, struggling to gain momentum as investors awaited more data to guide the economic and monetary policy outlook.

The Fitch downgrade of the USA to AA+ from AAA , so far being ignored by traders.

US 10Y’s back above 4% and supporting the recent Dollar at the expense of precious metals.

Investors now look ahead to the key US monthly jobs report later in the week.

Meanwhile, the Reserve Bank of Australia kept its policy rate unchanged at 4.1% during its August meeting, defying market expectations for a 25 basis point rate hike.

Source: Kitco

Currencies

Dollar higher on the back of higher US yields

The dollar index appreciated to 102.3 on the first day of August.

The Greenback, trading at high levels not seen in nearly a month, as risk appetite declined.

Investors also digesting fresh economic data and the monetary policy outlook.

The ISM manufacturing PMI for the US pointed to a ninth-straight month of contraction in the factory sector.

The payrolls report due Friday is set to provide further clues on the labour market strength.

Source : Forexnews