Midday Note 8 August 2023

Good Afternoon

ZAR losses continued overnight with the unit consolidating at weaker levels in the morning session.?

Data This week

TUESDAY

• 14H15 : US FED HARKER?SPEECH

THURSDAY

• 14H30 : US INFLATION?3.3% YOY EXPECTED VS 3% PREVIOUS
• 14H30 : US INFLATION?0.2% MOM EXPECTED VS 0.2% PREVIOUS
• 14H30 : US CORE INFLATION 4.7% YOY EXPECTED UNCHANGED

Market Highlights:

The Rand weakness continued throughout Monday and into early Tuesday trading.

• The local unit reaching R18.8300/$ in Joburg morning trading.
• Weakness continued with traders liquidating Long ZAR positions, with both profit-takes and stop-losses triggered.
• Adding to nervousness is tomorrow’s SA holiday.
• NB: it is usually accompanied with a “dry-up of liquidity”, resulting in wide ranges

• But with a week light of meaningful market moving data, the US CPI continues to attract the most attention and concern.

• In addition, yields declined after?Moody’s downgraded 10 small US banks ,once again bringing attention to US regional banks.
• The rating agency said “many banks’ Q2 results showed growing profitability pressures.
• It will reduce their ability to generate internal capital” as a “mild recession looms and asset quality looks set to decline”,
• particularly in some banks’ commercial real-estate portfolio. Source CNBC

• The result a drop in negative sentiment with stocks trading lower in early trading and the (safe-haven) Dollar the primary beneficiary.
• The benchmark SP500 lower as well as the 10YT to 4.01%.
• The Dollar once again benefitting from global economic uncertainty.
• Trade :?BUY USDZAR on dips.

SOUTH AFRICA

CAPE TAXI VIOLENCE

• Cape Town Mayor Geordin Hill-Lewis has again called on the South African National Taxi Council (Santaco) to put an end to ongoing acts of violence as its minibus taxi strike continues.
• Sporadic incidents have been reported since Thursday afternoon, following a decision by Santaco Western Cape to withdraw all minibus taxi operations.
• But the council is adamant its members are not responsible for the attacks that turned deadly on Monday.
• Hill-Lewis has welcomed the?Western Cape High Court’s granting of an urgent interdict?late on Monday night.
• The city joined as an applicant in proceedings with Golden Arrow seeking a contempt order against Santaco for strike-related violence. Source?Ewn

COMMODITY PRICES

• Glencore half-year profit drops 50% as commodity prices ease
• At its own mines, Glencore said profit was hurt by lower prices for coal and cobalt in particular.
• Glencore reported a steep drop in first-half profit and slashed returns to its shareholders as disappointing Chinese demand weighs on commodity prices.
• Glencore reported first-half core earnings of $9.4 billion, half the record number it posted a year ago, though still one of its best-ever performances. The commodity trader and miner saw profits soar last year as Russia’s invasion of Ukraine sent energy prices to records and dislocated global trade flows, but many of those pressures have now eased, while a sputtering economic recovery in top consumer China has hurt prices, knocking profitability across the mining sector.
• Source Moneyweb

GLOBAL MARKETS

Stocks

Equities higher after bumper earnings reports.

• On Monday, the Dow climbed 1.16%, the S&P 500 gained 0.9% and the Nasdaq Composite edged up 0.61%.
• Ten out of the 11 S&P sectors ending higher led to the upside by communication services, financials and industrials.
• Those gains came on a better-than-expected corporate earnings season, with about 80% of S&P 500 companies that have reported earnings posting positive surprises.
• US stock futures held steady on Tuesday after the major averages finished higher during Monday’s regular session, while investors assess the latest batch of corporate earnings reports.

Bonds

Yields lower on Tuesday following US regional bank concerns.

• Government bond yields around the world retreated on Tuesday, with the US 10-year Treasury note yield falling to 4.02%.
• It was?the lowest in near a week, as concerns about the banking sector re-emerged.
• Moody’s cut the credit rating for 10 small to mid-sized US banks and warned it may downgrade major lenders.
• The rating agency said “many banks’ Q2 results showed growing profitability pressures and asset quality looks set to decline” particularly in some banks’ commercial real-estate portfolio.
• Market participants are also eagerly awaiting the release of the US CPI report for further insights into the prevailing price pressures in the economy. Additionally, the Treasury Department is planning to conduct a sale of $103 billion in coupon-bearing debt later?in?the?week.

?Market Closes:

• DOW +407 to 35,473
• SP500 + 40 to 4,518
• NASDAQ +85 to 13,994

Asian markets

• Asian equities higher.?
• In Japan The Nikkei 225 Index climbed 0.38%?to close at 32,377, rising for the third straight session.
• The index tracking gains on Wall Street overnight as a better-than-expected corporate earnings season lifted market sentiment.
• Domestically, investors assessed data showing Japan’s current account surplus surged in June.
• BUT household spending and real wages declined in the same month. Source:?Reuters

Energy

Oil prices consolidating higher as Saudi/Russia extends cuts.?

• Brent crude futures fell below $85 per barrel?on Tuesday.
• Prices extending a 1.1% decline and moving away from a four-month high touched above $86.6/bl
• Traders anticipate less demand from both China and the US.
• The latest data showed China’s exports and imports fell by more than expected in July due to weak foreign and domestic demand.
• Also, cautious reined ahead of key inflation prints from the two world’s biggest economies.
• Last week, Saudi Arabia announced it would extend a voluntary output cut of one million barrels per day through September.
• The kingdom warned that it could extend or deepen production cuts beyond that data.
• Additionally, Russia said it will also reduce its oil exports by 300,000 bpd in September.?Source Gulf news

Metals

Precious metals steady after recent?Dollar rally.

• Gold remained below $1,940?an ounce on Tuesday.
• The metal facing renewed pressure as investors prepare for key US inflation data this week that could influence the trajectory of interest rates.
• The US consumer price index report will be released on Thursday, while the producer price index report is slated the following day.
• Last week, data showed that the US economy added 187K jobs in July, less than market expectations for a 200K increase, but the unemployment rate unexpectedly fell to 3.5% and wage growth slowed less than expected.
• The metal has come under pressure since mid-July as signs of economic resilience in the US and bets that the Federal Reserve will keep monetary policy restrictive for some time weighed on sentiment.
• Source: Kitco

Currencies

Dollar higher on the back of rising US yields

• The?US dollar index firmed up above 102?on Tuesday, holding near one-month highs.
• Traders waiting for US inflation data to guide the economic and monetary policy outlook.
• The US CPI report will be released on Thursday, while the PPI report is slated the following day.
• The dollar has also remained up nearly 3% since mid-July as signs of economic resilience in the US and bets that the Federal Reserve will keep monetary policy restrictive for some time supported the currency.
• The greenback strengthened across the board, with the most pronounced buying activity against the Japanese yen and SA Rand.
• Source : Fxnews??