Daily Market Report 13 Feb
ZAR Resilient Despite Higher US Inflation & Rising Yields
Key Developments
- South Africa: Budget & Economic Outlook
- Expectations for Next Week’s Budget: Market anticipates a conservative fiscal approach.
- Two-Pot Withdrawals on the Rise: Household financial needs outweigh savings incentives.
- Business Confidence Improves: Optimism around GNU and economic prospects boosts sentiment.
- Global: US Inflation & Market Response
- US CPI Surprises to the Upside: Inflation rose 0.5% m/m and 3% y/y, core at 3.3% y/y.
- Fed to Remain Conservative: Markets now price in only one rate cut, delayed to December.
- US Treasury Yields Surge: 10-year yield jumps 11.8bps to 4.65%, curve bear steepens.
- USD Gains but Lacks Conviction: Trade uncertainty and tariff concerns cap upside potential.
Market Insight – FX
- ZAR Performance
- Spot: 18.4650 | Range: 18.3075 – 18.6450
- USD initially rallied on CPI data, but ZAR remained stable amid improving local sentiment.
- Gold prices remain elevated, strengthening SA’s terms of trade and supporting the ZAR.
- SA’s fiscal prudence & credit rating outlook keep investors optimistic about the currency.
- Support at 18.3100, while resistance near 18.6450 will likely limit topside moves.
- Global FX Trends
- USD Index consolidates near 107.80, retracing some gains as investors assess Fed outlook.
- EUR/USD holds above 1.0400, buoyed by reports of Trump-Zelenskiy peace talks.
- GBP/USD steady near 1.2450, awaiting UK GDP and industrial production data.
- USD/JPY at 154.66, with resistance at 154.85 as higher Treasury yields weigh on the yen.
Market Insight – Fixed Income
- US Treasuries & Global Bonds
- US 10-year yield surged to 4.65%, as inflation concerns push out Fed rate-cut expectations.
- Yield curve steepened as markets price in a more prolonged period of tight monetary policy.
- Fed remains cautious, with Powell emphasizing data-driven decisions.
- SA Bonds & FRAs
- SA bond yields edged higher, reacting to US inflation data & shifting Fed expectations.
- Upcoming budget will be critical, with markets looking for credible fiscal consolidation.
- FRAs signal fewer rate cuts this year, reflecting a shift towards monetary conservatism:
- 3X6 FRA now pricing in just 12bp of cuts.
- 6X9 FRA factoring in 15bp for Q3.
- 9X12 FRA shows 18bp cut expectations.
- 12X15 FRA suggests SARB may remain on hold for all of 2025.
Outlook
- ZAR expected to trade cautiously, balancing higher US yields with improving local sentiment.
- Budget focus next week, with investors looking for fiscal discipline & structural reforms.
- US inflation and tariff policies keep the Fed cautious, reducing rate-cut expectations further.
- Gold demand remains a tailwind for ZAR, as central banks continue accumulating reserves.
- US Treasury yields likely to stay elevated, limiting global bond market rallies.
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