Daily Market Report – 1 Apr 2025

 

Fed vs Fiscal: Who’s Really Running the Show?

The Fed is rapidly becoming a reactor rather than a driver of US macro policy as Trump’s tariff-heavy fiscal stance reshapes inflation, growth expectations, and market sentiment. With:

• US Treasury yields plummeting,
• Fed funds futures now pricing in 3 cuts for 2025,
• Yield curve de-inverting (classic recession signal),
• Consumer sentiment rolling over, and
• GDPNow estimates cratering

It’s clear the Fed faces a stark policy trade-off: defend inflation targets or bail out GDP and asset prices.

Expect dovish Fed pivots dressed up in cautious language. They’ll likely pause quantitative tightening (QT) soon and hint at easing—even as inflation risks from tariffs linger.

Back Home: GNU Back From the Brink

Constructive Progress on Budget Talks

• Budget compromise likely includes a mild 0.5% VAT hike, with commitments to curb public sector spending.
• This reflects both DA-ANC compromise and signals that the GNU is functional—just slow and democratic (by design).

Net Result: If a deal is announced today or tomorrow, ZAR & SAGBs could rally sharply. Political risk premia would contract, and the bond market would welcome signs of discipline.

ZAR Update – Quietly Regaining Ground

• Spot: 18.2700
• Range: 18.0340 – 18.4450
• Resistance: 18.4000
• Support: 18.1000

Tailwinds:

• Declining UST yields
• Surging gold prices (now >$3,070/oz)
• GNU coherence improving
• Reduced ZAR volatility due to limited foreign positioning

Headwinds:

• Global equity market wobble
• Residual budget uncertainty until final confirmation

Fixed Income – Credit Growth Slows, Inflation No Threat

• Private sector credit growth slowing → +3.68% y/y
• M3 money supply decelerating → +6.05% y/y
• Household advances down → -2.75% y/y
• Corporate credit also cooling → -4.50% y/y

What This Means: This is a low-inflation, low-demand environment. SARB can afford to hold rates or ease modestly later in the year, particularly if the budget delivers credible consolidation.

Today’s bond auction will serve as a litmus test for fiscal sentiment. Expect solid demand if GNU news confirms progress.

FRAs Steady – Curve Reflects Calm

Interpretation: Market expects one full SARB cut in 2025. More possible if Fed leads the way and fiscal noise dies down.

Global Overview – Risk Off Rumble

• USD net shorts doubled → $3.39bn
• Volatility up, especially in EUR/USD and safe-haven pairs
• Gold surging; Treasuries beating equities for first time since 2020
• S&P 500 tracking worst quarterly relative performance since the 1980s
• Jobs report Friday + “Liberation Day” tariff deadline = mega week

Tactical Playbook

• Buy ZAR dips below 18.30 if budget passes. Target: 18.00/17.85
• Go long SAGBs if bond auction shows strong demand + budget compromise confirmed
• Watch Fed’s April FOMC for QT language, especially post-payrolls
• Monitor gold miners on JSE for leverage to record bullion prices

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