Daily Market Report 1 Nov
South Africa (SA)
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Criticism of the Medium-Term Budget Policy Statement (MTBPS):
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Perspective: The MTBPS has faced backlash, primarily from parties with socialist or communist inclinations, who argue it’s “anti-poor.” They view a reduced government role as creating opportunities for private, capitalist interests at the expense of public welfare.
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Counterpoint: Supporters of the MTBPS argue that a streamlined government fosters economic resilience, given that investor confidence, lower bond yields, and stable inflation indicators reflect global optimism about South Africa’s direction. Proponents highlight that smaller, efficient governance is essential to avoid pitfalls of inefficiency and corruption associated with a bloated government structure.
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Debt Collection Urgency Among Water Boards:
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Treasury’s Warning: Treasury urges water boards to improve debt collection, highlighting that sustainable revenue collection from utility boards is essential for financial health at all government levels. Mismanagement in this area risks not only the stability of water services but also broader public sector sustainability.
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Early Government Retirement Packages:
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Skills Concerns: Critics warn that incentivising early retirements could lead to a drain of experienced personnel, impairing the government’s functional capacity. Such skills losses could have long-term negative impacts on public service quality unless measures are in place to transfer knowledge and support strategic rehiring.
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South Africa’s Trade Balance and ZAR Resilience:
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Trade Surplus Performance: September saw a remarkable R12.8 billion trade surplus, driven by vehicle, gold, and PGM exports, which helped the ZAR stabilize against global currencies. This performance strengthens the ZAR, especially if it can withstand rising demand for imports in Q4.
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ZAR Exchange Rate Insight: The ZAR’s strength, sitting around 17.62, is buoyed by both local economic data and external USD pressures. For now, the ZAR looks steady with its resistance and support levels well-defined, hinting at a potential continued rally as the year closes.
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Producer Price Index (PPI) Implications:
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Disinflationary Signal: South Africa’s PPI for September reached a four-year low at 1.0%, reinforcing expectations of lower CPI, which could lead to further SARB rate cuts. This deflationary environment benefits disposable income, easing consumer pressures and potentially spurring private consumption.
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Interest Rate Outlook: Current FRA curves suggest the market is pricing in SARB rate cuts starting November, with possibilities of deeper cuts contingent on continued ZAR strength and global oil prices. SARB’s policy direction will be key, especially given these shifts toward more conservative inflation targets.
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China (CH)
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Manufacturing Expansion in October: China’s manufacturing activity showed renewed growth, pointing to recovery potential within the industrial sector. This rebound is vital for China’s economy as it aligns with government measures to counter slowing growth and is likely to contribute positively to regional supply chains and raw material demand.
Global Markets
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USD and U.S. Treasury Yield Dynamics:
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USD Stabilization: The USD’s recent performance suggests it may be nearing its peak, supported by mixed consumer and PCE data. Investors are cautiously awaiting U.S. non-farm payroll data, which will be pivotal for the next steps in Federal Reserve policy.
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Treasury Yields: Rising U.S. Treasury yields reflect persistent economic resilience, though the Federal Reserve seems in no rush to reduce rates. Expectations hinge on upcoming employment data, with a rate cut anticipated but not locked in for December.
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Eurozone and British Pound Trends:
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Eurozone Inflation and ECB Policy: Higher-than-expected EZ CPI at 2.0% could lead the ECB to maintain or cut rates in smaller increments. The EUR/USD has remained stable in the 1.0850 range, though future rate moves will depend on inflation persistence.
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Pound Weakness: The GBP faces downward pressure, likely driven by internal budget challenges and broader uncertainty, as it closes out a difficult month.
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Global Interest Rate Trends:
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Japanese Yen and BoJ Stance: The yen remains weak after the BoJ reaffirmed its hawkish stance, contingent on data aligning with forecasts. This might signal rate hikes if economic indicators align, particularly inflation and growth.
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Conclusion
Overall, these trends underscore the importance of pragmatic fiscal policies, exchange rate resilience, and the role of effective governance in stabilising both South Africa’s and other economies. The focus on sustainability, coupled with vigilance over inflation and government spending, is essential for maintaining economic growth in today’s globally interdependent landscape. The ZAR, if supported by positive trade balances and efficient debt management, could solidify its position heading into 2025, while global currency trends remain sensitive to central bank policies and macroeconomic data releases.
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Exchange Rate Risk arises when an organisation conducts business in multiple currencies, either through exports and imports, or through foreign operations.
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