Daily Market Report 11 Mar

Daily Market Report – 11 March 2025

ZAR Stalls Despite Weaker USD as GNU Struggles to Agree on Budget

Market Overview

The ZAR has failed to capitalize on a weaker USD as uncertainty over SA’s budget grows, while global recession fears push stock markets into freefall. Domestically, the GNU remains divided over key fiscal decisions, weighing on sentiment just as markets price in a potential US recession fueled by Trump’s aggressive fiscal policies, tariffs, and liquidity tightening.

Key Market Themes

SA Budget Uncertainty

  • Finance Minister Godongwana will meet ANC officials amid rising tensions within the GNU.
  • Key sticking points:
    • VAT Hike: DA refuses a 2% VAT hike but may consider a 1% increase if ANC scraps Expropriation Without Compensation (EWC).
    • EFF’s Role: EFF willing to support VAT increase if DA is removed from GNU.
  • Risk: If the budget is postponed again, SA’s risk profile will deteriorate further, hurting bonds & ZAR.

US Economic Slowdown & Recession Fears

  • Stock markets worldwide are plunging – not just because of Trump’s policies, but also due to natural end-of-cycle dynamics.
  • US economic data deteriorating:
    • Labor market weakening – mass layoffs in civil service & corporate sector.
    • Credit stress rising – auto loans, housing affordability, & business investment slowing.
    • Trump tariffs exacerbate risks – slowing trade just as GDP naturally decelerates.

US Dollar Weakens as Fed Rate Cuts Look More Likely

  • The USD Index (DXY) fell to 103.8 (down nearly 6% from Jan highs of 110.0).
  • US Treasury yields falling, and markets now expect 3+ Fed rate cuts in 2025.
  • Fed balancing act: Still tightening liquidity, but rate cuts may be needed to stabilize credit markets.

Market Impact – FX

  • USD-ZAR Outlook:
    • Key Support: 18.0350
    • Key Resistance: 18.4175
    • ZAR should have benefited from weaker USD, but budget uncertainty limits gains.
    • Risk: If budget uncertainty persists, ZAR could weaken above 18.4000.
    • Potential catalyst for ZAR strength: A clear, reform-focused budget on Wednesday.
  • Global USD Weakness Continues:
    • Fed rate cuts expected → Weaker USD → Stronger ZAR.
    • Risk sentiment dominates → If global equities keep falling, ZAR could struggle.

Market Impact – Bonds & Interest Rates

  • SA Bonds (Yield Curve)
    • Foreign investors waiting for budget clarity before taking strong positions.
    • If budget is prudent → SA bonds could rally, lowering yields.
    • R209 spread over US 10yr remains wide at ~650bp (attractive for carry trades).
  • FRAs & Rate Expectations
    • Market pricing in at least 3 rate cuts in SA this year.
    • 3X6 FRA: 22bp cut priced in.
    • 6X9 FRA: 29bp cut priced in.
    • 9X12 FRA: -36bp priced in.
    • 12X15 FRA: -38bp priced in.
    • Lower global yields & weaker USD = Room for SARB to cut rates further.

What to Watch This Week

Wednesday’s SA Budget Speech – Market reaction to VAT hike, spending cuts & reform signals.
US CPI Data on Wednesday – Could confirm Fed rate cut trajectory.
USD-ZAR reaction at 18.0350 support – A break below could open the door to 17.8900.
Stock Market Trends – If equities keep plunging, safe-haven flows could cap ZAR gains.

Final Thought: ZAR on Hold Until Budget Outcome

  • If budget uncertainty continues, ZAR could test 18.4000 resistance.
  • If budget delivers fiscal reforms, ZAR could break below 18.0000.

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