27 Jan

Daily Market Report 27 Jan

ZAR Stable Ahead of SARB Decision Amid Mixed Global Signals

Key Developments

  • South Africa:
    • SARB Outlook: All eyes are on Thursday’s MPC meeting, with markets expecting a 25bp rate cut. Despite soft inflation, uncertainties around fiscal policy, Eskom tariff hikes, and Trump’s global economic stance could push the SARB to adopt a cautious approach.
    • Economic Data: The Richards Bay Coal Terminal posted strong 2024 results, boosting trade sentiment, though ideological friction over the Expropriation Bill signed by President Ramaphosa could weigh on investor confidence.
  • Global:
    • US Fed Policy: Markets anticipate the Fed to hold rates steady this week, even as President Trump intensifies calls for rate cuts and lower oil prices.
    • BoJ Hike: Japan’s central bank raised rates to 0.5%, its highest in 17 years, reflecting confidence in wage and inflation stability.

Market Insight – FX

  • ZAR:
    • Spot: 18.5050; Range: 18.40/6850.
    • The ZAR strengthened alongside a retreat in US Treasury yields and a softer USD but remains vulnerable to any shifts in global sentiment, particularly from Trump’s tariff threats or central bank guidance.
  • Global FX:
    • The USD faced selling pressure amid weak US PMI data and Trump’s dovish rhetoric. The EUR/USD rallied to 1.0400 on improving Eurozone data, while GBP/USD gained on technical momentum and potential BoE rate cuts. The yen consolidated near USD/JPY155.00 following last week’s BoJ hike.

Market Insight – Fixed Income

  • SA Bonds:
    • South African bonds have shown resilience, driven by softer domestic inflation and strong auction demand last week. The focus now shifts to the SARB’s decision and whether its policy signals will alter bond market dynamics.
    • Yield Outlook: The 3X6 FRA indicates a likely 25bp SARB rate cut this week, with the possibility of a second later in the year diminishing.
  • Global Bonds:
    • US Treasury yields remain in focus as the Fed grapples with Trump’s economic demands, including immediate rate cuts and higher import taxes. Investors await clearer signals on how these policies might influence long-term inflation and labour market dynamics.

Outlook

  • ZAR: Further strength depends on SARB policy clarity and global risk sentiment. A dovish SARB tone could support gains but would heighten volatility if fiscal risks resurface.
  • Global Central Banks: The Fed, SARB, and ECB decisions this week will guide FX and bond market direction. Trump’s economic maneuvers and unpredictable policy shifts remain significant wild cards.
  • Economic Data: Local developments take a backseat, with focus on US and global data, including PMI surveys and guidance on trade policies.

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