Daily Market Report 14 Feb

Daily Market Report 14 Feb

ZAR Resilient Amid USD Weakness & Gold Rally

Key Developments

  • South Africa: Budget Focus & Structural Challenges
    • Mining Production Drops: -2.4% y/y in December; PGMs -7.1%, Gold -8.4%.
    • SARB Caution: Governor Kganyago warns against populist policies.
    • Business Confidence Improves: Optimism about GNU’s growth initiatives.
    • Crypto Regulation Tightens: Exchanges must disclose client transfer information.
  • Global: US Inflation & Tariff Worries
    • US PPI Shows Softer Inflation: Pipeline pressures ease, raising Fed rate cut prospects.
    • USD Weakens: Trade-weighted USD near December 2024 lows.
    • Gold Surges: Persistent demand from central banks & commodity traders.
    • Tariff Tensions: Trump’s reciprocal tariff plan raises concerns, particularly in the EU.

Market Insight – FX

  • ZAR Performance
    • Spot: 18.4750 | Range: 18.3075 – 18.6450
    • Gold Prices Surge: Gold near record highs, supporting SA’s terms of trade.
    • Mining Woes Offset Gains: Declining production despite commodity boom.
    • USD Weakness: Soft PPI data spurs speculation of additional Fed rate cuts.
    • Key Level: Break below 18.4000 could trigger fresh ZAR gains.
    • Pre-Budget Consolidation: Markets cautious ahead of next week’s crucial budget.
  • Global FX Trends
    • USD Index Near 107: Pressure from soft PPI despite CPI upside surprise.
    • EUR/USD: Hovering near 1.0450, buoyed by Russia-Ukraine peace talk rumors.
    • GBP/USD: Rises to 1.2500, supported by surprising Q4 GDP growth.
    • USD/JPY: Trades near 154.60, with upside capped by BoJ hawkish stance.

Market Insight – Fixed Income

  • US Treasuries & Global Bonds
    • UST Yields Decline: 10-year yield down 7bps to 4.55% post-PPI.
    • Fed Rate Cut Bets Revive: Markets now expect one cut by December.
    • Tariff Concerns: Trump’s reciprocal tariff plan adds macro uncertainty.
  • SA Bonds & FRAs
    • Bonds Trade Mixed: Gains from ZAR strength offset by global rate concerns.
    • Budget Uncertainty: Markets await fiscal clarity from Godongwana’s speech.
    • FRAs Reflect Monetary Conservatism:
      • 3X6 FRA: 14bp of cuts priced in.
      • 6X9 FRA: 18bp of cuts expected by Q3.
      • 9X12 FRA: 23bp cut expected.
      • 12X15 FRA: Implies unchanged rates for 2025.

Outlook

  • Gold Prices to Support ZAR: Gold demand remains robust, offering ZAR stability.
  • USD Pressured by Rate Speculation: Fed’s cautious stance could weaken the USD further.
  • SA Budget Watch: Investors await clarity on fiscal & structural reform plans.
  • Trump’s Trade War Uncertainty: Markets watch for potential retaliation from EU.
  • ZAR Key Level: 18.4000 remains critical support – a break could extend gains.

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