13 Jan

Daily Market Report 13 Jan

US Business Cycle Drives Market Sentiment Ahead of Trump’s Inauguration

Domestic Developments

  • Infrastructure Revival: Standard Bank anticipates a R700bn investment windfall to boost SA infrastructure and gross fixed capital formation (GFCF), with the private sector funding a R100bn Transformation Fund.
  • Public Service Unions: Feedback on the revised wage offer is expected this week, which could influence fiscal dynamics.
  • Manufacturing Struggles: SA’s de-industrialisation continues, with persistent structural inefficiencies and logistical constraints weighing on GDP growth and tax revenues.

Global Trends

  • US Exceptionalism: Strong US economic data, including robust job growth and rising bond yields (10yr Treasury at 4.76%), supports the USD. Fed funds futures now anticipate only one rate cut in 2025, delayed to December.
  • China Trade Growth: Surprising import and export performance in December offers a glimmer of optimism amid broader concerns of economic weakness and deflation risks.

Market Insight – FX

  • ZAR Under Pressure: The ZAR remains defensive against a strong USD, which benefits from high Treasury yields and the US’s perceived economic resilience.
    • Spot: 19.1400, with a range of 19.0750/19.3900.
    • Key upside resistance at 19.2275; a breach could lead to 19.3900.
  • Global FX:
    • EUR/USD: Dips to 1.0230, pressured by the USD and faltering eurozone growth.
    • GBP/USD: Breaks below 1.2200, with 1.2100 in focus amid UK fiscal and economic concerns.
    • USD/JPY: Holds near 158.00, with turbulent offshore markets curtailing upside momentum.

Market Insight – Fixed Income

  • SA Bonds: Rising US yields exert pressure on SA bonds, with limited foreign inflows compounding ZAR weakness.
  • FRAs: Depreciation of the ZAR and revised Fed expectations are pricing out multiple rate cuts:
    • 1X4 FRA: -19bp, signaling uncertainty for a Q1 cut.
    • 6X9 FRA: Compressed to -33bp, suggesting a cautious SARB approach.

Outlook

  • The USD is bolstered by strong fiscal support and elevated bond yields, sustaining its dominance in global markets. SA’s reliance on foreign capital flows to fund infrastructure and reform remains critical to stabilizing the ZAR and driving economic recovery.

 

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