13 Nov

Daily Market Report 13 Nov

South Africa (SA)

  1. Unemployment Rate Update:

    • Improvement with Challenges: The official unemployment rate decreased to 32.1% y/y in Q3 2024, down from 33.5% y/y in Q2 2024, better than consensus expectations of 32.8%. The expanded rate also dropped to 41.9% from 42.6%. This decline is promising, driven by an increase in informal sector jobs (+7.7% y/y), which contributed significantly to the total job growth of 201,000 in Q3.
    • Challenges Persist: Formal employment contracted by 0.2% y/y, with 27,000 job losses. This highlights structural challenges in sustaining job growth in the formal sector, underlining the need for comprehensive reforms to boost stable employment.

  2. Manufacturing Sector Pressure:

    • Continued Contraction: September’s manufacturing output shrank by -0.8% y/y, unchanged from August and below expectations of +0.8% growth. Motor vehicle parts production suffered particularly, declining by -18.7% y/y, marking the fifth consecutive month of contraction.
    • Sector Outlook: Despite no load-shedding in recent months, manufacturing remains hampered by deeper structural issues. Efforts to rejuvenate this sector will require robust policies that address logistics, workforce education, technological investment, and access to capital.

  3. Port Privatisation Conflict:

    • ICTSI vs. Maersk: The privatisation of Durban’s port, critical for trade, has faced delays due to disputes involving ICTSI and Maersk. Any hold-ups in improving port efficiency can have negative implications for SA’s export capacity and economic competitiveness.

Market Insight – FX

USD-ZAR Performance:

  • Current Level and Momentum: USD-ZAR crossed the 18.0000 mark, reflecting the ongoing strength of the USD following Trump’s election. Spot trading is around 18.0800, with the pair testing resistance levels up to 18.2000.
  • Factors Influencing the ZAR: The currency has struggled amid rising US Treasury yields and USD strength driven by expectations of pro-growth policies under Trump. Although SA’s terms of trade remain relatively robust, short-term speculative positioning has pressured the ZAR.
  • Outlook: While momentum behind the USD rally shows signs of moderating, continued strength in US economic performance and interest rate expectations could sustain USD dominance. Support for the ZAR may solidify around 17.9000, with potential for easing if market sentiment shifts.

Global Context:

  • US Dollar Resilience: The USD index rose to a four-month high of 105.93, supported by investor sentiment that Trump’s presidency will drive economic growth. However, sustained strength could challenge global inflation dynamics and complicate the Fed’s policy path.
  • Eurozone Concerns: The euro weakened, hitting EUR/USD1.0594 amid fears of US-imposed tariffs. This, combined with political challenges in major EU economies, contributes to a bearish sentiment.

Market Insight – Fixed Income

  1. SA Bonds and Yield Spreads:

    • Narrowing Spread: The yield spread between SA 10-year bonds and US Treasuries has tightened to 478bps, its lowest in 11 years. This reflects resilient demand for SA bonds despite rising global yields. However, if US Treasury yields remain elevated due to expectations of prolonged Fed rate tightening, SA bond yields may face upward pressure.
    • Upcoming Auctions: The Treasury’s plan to raise R3.75bn through the sale of R2033, R2035, and R2038 bonds will test investor appetite amid global and domestic pressures.

  2. US Inflation Focus:

    • CPI Data Impact: Investors are watching US CPI data closely, as it will inform expectations for the Fed’s rate path. If inflation readings suggest persistent pressure, the Fed may maintain higher rates for longer, affecting global bond markets and reinforcing USD strength.
    • Fed’s Stance: Trump’s policies could introduce inflationary pressures, challenging the Fed’s efforts to meet its 2% target. This could lead to a cautious approach in easing, keeping Treasury yields elevated and influencing global capital flows.

Forward-looking Implications

  • ZAR Prospects: The current USD strength driven by the “Trump trade” and robust US economic performance challenges the ZAR. However, this momentum might moderate if upcoming US economic data, including CPI, does not justify continued USD gains.
  • SA Fiscal and Policy Considerations: The narrowing of the SA-US bond spread implies that local fiscal policies and structural reforms are being closely monitored. The potential need for continued policy support for critical sectors, including manufacturing, may affect domestic economic stability.

 

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