Morning Note August 1

Morning Note

1 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: 17.9300

DOLLAR: 102.00

EURUSD: 1.0990

SP500:  4.598

GOLD: 1959

US10YT: 3.97%

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 rally reversed about as fast as it started with the unit once again threatening to break R18/$.

The Dollar well supported across the board following last week’s GDP report.
The index around the 102 handle.
In addition, the Buck gaining vs the Aussie Dollar after the RBA kept rates unchanged.
After the RBA surprise , focus will be squarely on the BOE rates ( expected to hike by 25).
But this week’s trader focus remains on Friday’s Employment report.
NFP expected at (+200k) and unemployment at 3.6%.

Yesterday , EU inflation printed unchanged at 5.3% indicating more is needed by the ECB. 

Policy rates likely to remain higher with inflation above the 2% band.

Market mover today are the US ISM manufacturing at 16h00
46.8 expected vs 46 earlier.
Data appears to be Dollar supportive and with the ZAR opening near the top end of the range –
 A break of R18/$ opens up R18.06 before R18.1900

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

***15H15  US ADP EMPLOYMENT CHANGE   188K  EXPECTED VS 497K  PREVIOUS

Thursday

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

11H0 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 retreated again losing more than 50 cents since Friday’s session.

 

 

 

 

 

 

 

The local unit reaching 17.9300 in early trading.

A combination of factors at play, with a stronger Dollar front and centre.

The buck riding the crest following last week’s stronger than expected GDP.
Traders citing rising yields allowing for strong Dollar demand.

Strong US GDP continues to attract attention especially with the Jobs report looming large on Friday.
The Dollar also gaining after the RBA once again surprised markets with another rate pause.
It was the 2nd month that that RBA defied expectations of a 25bp hike by holding rates at 4.1%.
Markets now focussed on the BOE later in the week, where a hike of 25 is expected.
– The BOE remains committed in its fight to bring inflation down.

The benchmark 10YT remains around the 4% level and this likely to be Dollar supportive and risk asset negative.
A slow down in foreign buying of SAGB’s also affecting demand for ZAR , and likely adding to early session weakness.

 

Market Close

DOW
+100 TO 35.559

SP500
+6 TO 4.588

NASDAQ
+29 TO 14.366

Overnight Trading

image: Trading economics

South Africa

Eskom

Eskom announced new loadshedding schedules as South Africans battle another cold front.

The SOE stating loadshedding will be implemented at Stages 2 and 4 during the week.

Breakdowns have reduced to 15 798MW of generating capacity while the generating capacity out of service for planned maintenance is 3 099MW.

Over the past 24 hours, a few generating units were returned to service , including Majuba and Medupi power stations.

Source : Eskom media 

Cape Town

Mother city records big increase in tourist numbers.

SA’s favourite tourist destination recovers from the Covid-19 disaster.

Tourism has been recovering strongly from the dark days of Covid-19, but the numbers are still below those of 2019 – except for Cape Town.

Figures show that tourism in the Western Cape, especially Cape Town, has recovered better than in the rest of SA and that the number of visitors has increased to above those of 2020.

Tourist accommodation shows that income generated by businesses offering accommodation increased to nearly R11 billion in the first five months of 2023. This is 42% higher than the R7.7 billion spend in the same period in 2022.

Then there is the expenditure on eating, drinking, sightseeing, car rental and leisure activities, generously dished out from wallets full of valuable dollars, euros and pounds.

Source: Stats SA

Global Markets

Stocks higher after month end rally ensures positive month.

  • US stock futures were little changed on Tuesday as investors cautiously awaited a fresh batch of corporate earnings reports.
  • Futures contracts tied to the three major indexes were all trading near breakeven.
  • Yesterday, the Dow rose 0.28%, the S&P 500 gained 0.15% and the Nasdaq Composite climbed 0.21%.
  • The  three benchmarks booking solid gains for July.
  • Solid  reported earnings, with 80% beating estimates on the SP500 fuelled the market rally further.

Traders hoping that the US economy will be able to avoid a recession, while easing inflation lowered the odds of further Federal Reserve monetary tightening.

Yields lower after RBA pauses again.

  • The benchmark , US 10 Year Note Bond Yield was 3.97 % on Tuesday August 1, according to OTC interbank yield quotes for this government bond maturity. Traders awaiting key data that includes PMI’s and the US NFP report on Friday.
  • Across the pond , the 10-year UK gilt yield continued to consolidate gains above 4.3%, reaching its highest level since July 17.
  • Investors prepared for the BOE’s August policy meeting. Markets are priced for  another +25 bps.
  • It will send borrowing costs to their highest level since the 2008 financial crisis, in response to persistent high inflation.
  • Also, The Reserve Bank of Australia kept its cash rate unchanged at 4.1% during its August meeting, defying market consensus of a 25bps rate hike.

 

Source: Reserve bank of Australia

Overnight Headlines

Asian Markets

Stocks lower after US data , raised the possibility of more rate hikes.

In Japan , the Nikkei 225 Index rose 0.5% to around 33,330 , extending gains from the previous session.

Traders citing firmer commodity prices helping resource-related stocks.

Investors also digested data showing Japan’s unemployment rate fell slightly to 2.5% in June from 2.6% in May.

Traders also tracking the 10-year JGB yield which surged to nine-year highs as the BOJ allowed it to rise above the 0.5% upper limit.

Gains among commodity-linked stocks were led by Nippon Steel (1.5%).Source Reuters

In Australia , the RBA surprised markets once again by leaving rates unchanged at 4.1% . markets were prices for a 25 bps hike.
The news sending the Aussie Dollar sharply lower vs the US dollar losing nearly 1% at 0.6650.

Source: Trading economics

Energy

Oil prices higher on supply concerns.

US WTI crude futures held above $81 per barrel on Tuesday.

Prices, hovering close to its highest levels in three months as the prospect of tighter global supply continued to lift oil prices.

The US oil benchmark also rallied 15.8% in July, its best monthly performance since January 2022.

Markets geared up for an OPEC+ meeting this week, where de facto leader Saudi Arabia is expected to extend its voluntary output cut for another month.

On the demand side, latest data showed that US fuel demand rose to 20.78 million bpd in May.

It was the highest since August 2019.

Source: Gulf News

Metals

Precious metals finding support.

Gold traded above $1,950 to $1962/oz after closing out July with solid gains of 2%.

The yellow metal remains well supported by growing expectations that central banks may be nearing the end of the tightening cycle.

In the US, data on Friday showed that annual core PCE prices rose 4.1% in June, the lowest since September 2021 and less than market expectations of 4.2%.Last week, the Fed implemented a widely expected 25 basis point rate hike in what analysts suggested could be the last rate increase in the current monetary tightening cycle.

Earlier this morning the RBA left rates unchanged at 4.1% vs a market expected +25bps hike.

Source: Kitco

Currencies

Dollar higher on the back of strong US Data.

The US dollar index spiked above 102 on Tuesday.

The Buck hovering near its strongest levels in three weeks as traders awaited more data to guide the economic and monetary policy outlook.

On Monday, a Federal Reserve survey showed US banks reported tighter credit standards and weaker loan demand from both businesses and consumers in the second quarter.

Chicago Fed President, Goolsbee also said the US central bank is “walking the line pretty well” on bringing down inflation without causing a recession.

Investors now look ahead to US manufacturing and services PMI data on Tuesday, as well as a key monthly jobs report later in the week.

The dollar strengthened notably against the Japanese yen as investors continued to assess the Bank of Japan’s yield curve control policy adjustment.

It also gained sharply versus the Australian dollar after the RBA policy decision of “no hike” after markets priced in 25bps.

Source: Fxnews