Daily Market Report 23 Jan

Soft CPI Print Increases SARB Rate Cut Prospects Amid Trump Uncertainty

 

Key Developments

• SA Economy:
  • CPI Data: December CPI rose to 3.0% y/y, below the forecast of 3.2%, while core inflation eased to 3.6% y/y. This soft inflation print strengthens the case for a near-term SARB rate cut but leaves room for cautious policymaking.
  • Retail Sales: November retail sales exceeded expectations, growing 7.7% y/y, reflecting improved consumer confidence driven by rate cuts, low inflation, and strong Black Friday sales.
  • Mining: Production fell -0.9% y/y, while mineral sales remained resilient, supported by favorable commodity prices like gold.
  • Policy Sentiment: President Ramaphosa signals optimism in finding common ground with Trump, while the SARB remains cautious amid tariff uncertainty and Eskom’s pending electricity price hike decision.
• US Developments:
  • Trump warned local officials against interfering with his immigration crackdown while announcing comprehensive trade reviews and hinting at 10% tariffs on China.

Market Insight – FX

• ZAR Performance:
  • Spot: 18.5000; Range: 18.40/6950.
  • The ZAR recovered recent losses but faces resistance as softer CPI data raises rate-cut expectations. Rising gold prices and positive trade terms provide support, but uncertainty around Trump’s policies could limit further gains.
  • Investors remain cautious, monitoring US Treasury yields and global risk sentiment.

Market Insight – Fixed Income

• SA Bonds:
  • South African bond yields declined after the soft CPI print, signaling expectations for rate cuts. The recent vanilla bond auction showed strong demand, with clearing yields above 10%, highlighting the market’s attraction to high real yields.
  • Focus now shifts to upcoming monetary policy decisions from major central banks, including the SARB next week.
• US Treasuries:
  • Yields rose slightly as markets assessed Trump’s policy implications. Investors remain cautious, with the US 10-year yield at 4.54% and the 2-year yield at 4.228%.

Outlook

• ZAR: The currency may consolidate around current levels unless a significant catalyst emerges. Trump’s evolving policy decisions and SARB’s rate-cut guidance will be key drivers.
• SARB Policy: While the soft CPI supports a rate cut, external risks and upcoming fiscal data could delay action until March.
• Global Trends: Tariff uncertainties and Trump’s fiscal policies will dominate the market narrative, influencing inflation, bond yields, and global sentiment.

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