Daily Market Report 12 Feb
ZAR Remains Resilient Amid Global & Domestic Uncertainty
Key Developments
- South Africa: GNU & Economic Policy Developments
- SA’s Manufacturing Sector Contracts: 2024 saw a -0.4% decline in output, despite the end of load-shedding.
- MPs Back Ramaphosa Against Trump: Cross-party support emerges as SA faces US policy pressure.
- Eskom to Compensate Consumers for Energy Contributions: Encouraging decentralized energy solutions.
- SA Prepares to Reengage US Diplomatically: Seeking to clarify its stance on trade & foreign policy.
- Global: US Tariffs & Fed Policy
- Trump’s 25% Tariffs on Steel & Aluminium: Canada, EU, and Mexico signal retaliation, escalating trade tensions.
- Fed Chair Powell’s Testimony: Avoids tariff commentary but emphasizes data-driven monetary policy.
- US Bond Yields Edge Higher: Traders reassess expectations for rate cuts in 2025.
Market Insight – FX
- ZAR Performance
- Spot: 18.4850 | Range: 18.3075 – 18.6450
- ZAR holds steady below 18.5000, despite ongoing geopolitical risks.
- Gold prices remain elevated, improving SA’s terms of trade and supporting the currency.
- Top-performing EM currency in 2024, boosted by GNU stability & optimism over reforms.
- Key support at 18.3100, while resistance near 18.6450 may limit upside moves.
- Global FX Trends
- USD Index consolidates near 108.45, as markets weigh tariff-driven inflation risks.
- EUR/USD holds near 1.0380, awaiting US CPI data for directional clarity.
- GBP/USD trading higher, driven by hawkish BoE commentary & strong demand.
- USD/JPY above 153.50, with higher US bond yields & importer demand supporting USD strength.
Market Insight – Fixed Income
- US Treasuries & Global Bonds
- US 10-year yield at 4.46%, as investors reassess inflation & growth risks.
- Fed maintains cautious stance, focusing on economic data before committing to rate cuts.
- US bond strategists now expect higher yields, as Trump tariffs complicate inflation expectations.
- SA Bonds & FRAs
- SA bond yields edge higher, as investors await the critical budget announcement next week.
- Budget expectations will be key: Markets need credible fiscal consolidation plans.
- FRAs reflect cautious rate-cut expectations:
- 3X6 FRA now pricing in just 16bp of cuts.
- 6X9 FRA factoring in 21bp cut for Q3.
- 9X12 FRA suggests only a partial cut (24bp).
- 12X15 FRA pricing in a full 25bp rate cut.
Outlook
- ZAR expected to trade cautiously, balancing trade risks with improving domestic sentiment.
- US-South Africa tensions remain a focus, with AGOA’s fate & trade relations under review.
- SA budget next week critical, with investors looking for clear fiscal direction.
- US CPI data & Powell’s continued testimony in focus, influencing Fed rate-cut expectations.
- Bond markets adjusting to prolonged Fed caution, as tariff-driven inflation risks grow.
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