3 Feb

Daily Market Report 3 Feb

Trump Imposes Tariffs, Markets React with Risk-Off Sentiment

Key Developments

  • Trump Announces Trade War:
    • 25% tariffs on Mexico & Canada and 10% on China imposed over the weekend.
    • US threatens to cut aid to SA over its controversial land law.
    • EU tariffs expected but no details yet.
    • Mexico & Canada vow retaliation, escalating global trade tensions.
  • Market Reaction:
    • Global stocks set for a sharp selloff due to rising uncertainty.
    • USD surges, with the Dollar Index approaching 110.00 as investors seek safety.
    • ZAR weakens sharply, along with other emerging-market currencies.
    • Gold prices rally as investors shift to safe-haven assets.
  • Local Context:
    • Ramaphosa to deliver the GNU’s first SONA this week.
    • Eskom’s new Chair calls ongoing losses ‘treasonous’, signaling major reforms ahead.
    • Treasury faces renewed pressure for fiscal discipline, given the rising uncertainty in global markets.

Market Insight – FX

  • ZAR Performance:
    • Spot: 18.9950 | Range: 18.8650 – 19.2300
    • USD-ZAR breaks above 19.00, driven by risk aversion and USD strength.
    • Next resistance level at 19.2300; downside limited at 18.8650.
    • Trade war fears will keep EM currencies under pressure.
  • Global FX Trends:
    • EUR/USD tumbles to 1.0220, facing pressure from US tariffs and ECB rate cuts.
    • GBP/USD stabilizes around 1.2250, but January lows of 1.2097 remain in play.
    • USD/JPY remains stable, with investors focusing on the EUR/JPY cross.

Market Insight – Fixed Income

  • US Treasuries:
    • Bond yields drop, reflecting risk aversion and growth concerns.
    • Safe-haven demand expected to drive US yields lower despite strong USD.
  • SA Bonds & FRAs:
    • ZAR depreciation raises inflation concerns, limiting bond gains.
    • SARB’s recent rate cut now under scrutiny, as a weaker currency complicates monetary policy.
    • FRAs expected to reset higher, reflecting higher risk premiums.

Outlook

  • Trump’s trade war could accelerate global growth risks, leading to higher inflation and prolonged high interest rates.
  • ZAR faces further pressure, with risk of breaching 19.2300 if risk sentiment worsens.
  • SARB likely to pause further rate cuts, as trade tensions drive currency volatility and inflation risks.
  • Global markets will remain volatile, with focus on retaliatory actions from Mexico, Canada, China, and the EU.

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