10 Jan

Daily Market Report 10 Jan

Economic Pressures Mount as Structural Issues Persist

Key Domestic Insights

Manufacturing Struggles: SA’s PMI dropped to 46.2 pts in December, marking the second consecutive contraction, driven by weaker business activity and new sales orders.

Vehicle Sales: Passenger vehicle sales rose by +8.2% y/y in December, but commercial vehicle sales and exports contracted, reflecting subdued business confidence.

Municipal Debt Crisis: Local government debt, including R110bn owed to Eskom, is unsustainable. The fiscus is unable to bail out municipalities, requiring urgent reforms to stabilize finances.

Market Insight – FX

ZAR: The ZAR remains under pressure, trading at 18.9200, with resistance at 19.0750. USD strength, driven by resilient US economic data and elevated bond yields, continues to dominate.

Global Trends: USD gains persist amid reports of potential tariffs under Trump, a robust US services sector, and moderated rate cut expectations. Meanwhile, EUR and GBP weakened on poor economic data and fiscal risks.

Market Insight – Fixed Income

SA Bonds: Domestic bond yields have shown resilience but face risks of outflows due to rising US yields. With local government liabilities exceeding R1 trillion, fiscal risks remain elevated.

Global Bonds: US 10-year Treasury yields climbed to 4.73%, nearing 2023 peaks. UK and Japanese bond yields also surged, reflecting concerns about inflation, debt, and political uncertainty under Trump’s policies.

Outlook

Structural reforms, private sector involvement, and fiscal discipline are critical to stabilizing SA’s economy and financial markets. Without these, rising bond yields and ZAR weakness are likely to persist.

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