Daily Market Report 11 Nov

South Africa (SA)

1. Ramaphosa and the Phala Phala Report:

   • Background: President Cyril Ramaphosa dismissed allegations concerning the Phala Phala farm scandal, preparing for legal proceedings against the EFF. This could be politically charged, affecting public trust and governance.
   • Implications for Markets: Political tension and any erosion of investor confidence in leadership could add risk to the ZAR. However, this issue’s market impact may be limited unless it escalates significantly or affects policy stability.

2. Treasury’s Stance on Basic Income Grant:

   • No Basic Income Grant: The Treasury has indicated that a basic income grant is currently off the table, reflecting the government’s cautious approach to fiscal expenditure amid budget constraints.
   • Fiscal and Economic Impact: While this decision might displease some advocacy groups, it signals fiscal prudence. Keeping social spending in check can reassure bond investors wary of potential debt escalation, sustaining relatively lower yields on SA government bonds.

3. Consumer and Industry Developments:

   • Premium Purchases Trend: Signs indicate a shift back towards more premium goods by consumers, suggesting a slight rebound in economic confidence.
   • Market Insight: This is cautiously optimistic, as it could point to resilience in the middle-to-upper consumer segments. However, persistent economic pressures may temper this trend’s strength.

United States

1. Trump’s Election Win and Economic Speculation:

   • Economic Policies: Investors anticipate pro-growth measures such as tax cuts and deregulation under a Trump administration. However, this comes with caveats: higher budget deficits and potential inflationary pressures could challenge the Fed’s policy approach.
   • USD Implications: The “Trump trade” reflects optimism for US economic dynamism, which has boosted the USD. Investors are betting on sustained economic strength and higher interest rates, but longer-term concerns about deficits and inflation could counterbalance these expectations.

2. Potential Policy Shifts:

   • Protectionism and Tariffs: Trump’s known strategy of imposing tariffs to promote domestic production could disrupt international trade. Industries deemed strategically important to the US may receive tariff protection, which could alter global trade flows and supply chains.
   • Fed’s Position: While a strong USD is supported by growth expectations, persistent inflation risks could lead the Fed to maintain or raise rates, potentially unsettling markets.

3. ArcelorMittal Retrenchments:

   • Corporate Downsizing: The announcement of job cuts by ArcelorMittal, one of the largest steel producers, points to sectoral challenges that could hint at broader economic trends in manufacturing and industrial output.
   • Market Reflection: Retrenchments at a major player like ArcelorMittal could be seen as a cautionary signal, suggesting ongoing adjustments within the industrial economy despite broader growth narratives.

4. Anticipated Changes in Washington and the Pentagon:

   • Political Shifts: A Trump-led government might introduce substantial leadership changes, impacting policy direction, military strategy, and economic regulations.
   • Global Positioning: Such shifts could influence alliances and strategic partnerships, particularly affecting emerging markets and trade-reliant countries like SA.

Market Insight – FX

ZAR Outlook:

• Current Position: The USD-ZAR is experiencing volatility at 17.6000, reflective of heightened global uncertainty and local economic variables.
• Resistance and Support: Should the pair break through the 17.6000 resistance, targets shift to the 17.70-17.8000 range, signaling potential for further ZAR depreciation. Conversely, support near 17.3500 could contain a downside move, aligning with technical levels such as the 61.8% Fibonacci retracement.
• Market Sentiment: The “Trump trade” has bolstered USD positioning, but future policy clarity, particularly on tariffs and budget management, will be critical for sustained momentum.

Global Context:

• USD Performance: The USD Index climbed to 104.96, reflecting investor expectations of US economic momentum under Trump, tempered by inflation concerns. A focus on the upcoming inflation data will influence rate cut expectations and broader USD performance.
• Euro and Pound Movements: The EUR/USD maintained levels above 1.0700 amid concerns about ECB policy versus the more cautious BoE. The pound’s relative strength is bolstered by UK fiscal plans that anticipate higher growth and inflation, forcing a potential tightening of BoE policy.
• JPY Weakness: The yen has shown weakness, trading at USD/JPY153.30. Market participants are cautious about buying the yen given potential geopolitical shifts and US policy direction.

Market Insight – Fixed Income

1. SA Bond Market:

   • Yield Resilience: SA 10-year bonds have shown resilience, with a narrowed spread to US 10-year Treasuries at 484bps, the tightest in a decade. This suggests stable fiscal perceptions following the MTBPS, despite global trends pushing US yields higher.
   • Investor Outlook: The contrast between US fiscal risk and SA’s perceived stabilization positions SA bonds favorably, particularly if the ZAR holds its current ground or strengthens.

2. Global Bond Dynamics:

   • US Treasury Yields: The recent rise in US yields reflects inflation worries tied to Trump’s anticipated economic policies. The Veterans Day closure today might lead to quieter trading but set the stage for reaction to upcoming inflation data.
   • China’s Debt Strategy: The 10 trillion yuan debt package focuses on restructuring local government finances, providing relief but sparking debate on whether it is sufficient given economic challenges like the property crisis.