Daily Market Report 14 Mar

Daily Market Report – 14 March 2025

SA’s Industrial Decline and Budget Uncertainty Weigh on Investors

Budget Fallout: Political Battlelines Drawn

South Africa’s budget deadlock continues, as the ANC refuses to amend Expropriation Without Compensation (EWC) and the National Health Insurance (NHI) acts, rejecting the DA’s offer to support the budget in exchange for economic reforms. The EFF and MK parties have also rejected the budget, ensuring a parliamentary battle ahead. This means:

  • The budget may not pass in its current form, requiring further negotiations.
  • Political instability is rising, affecting investor confidence.
  • The ANC’s leverage is shrinking, as opposition parties pressure it for concessions.
  • Market uncertainty is set to persist over the coming weeks.

While the EU has stepped in with a R94bn investment package, SA is also turning to China for funding after the US withdrew from the Just Energy Transition Partnership (JETP), leaving a $1.56bn funding gap.

SA’s Industrial Decline: Mining and Manufacturing Under Pressure

Mining Data Signals Structural Weakness

  • SA mining production fell by -2.7% y/y in January, worse than December’s -2.4% y/y decline.
  • Iron ore (-15.1%), PGMs (-3.8%), and coal (-4.4%) were the biggest drags.
  • Gold sales plummeted -21.1%, highlighting SA’s failure to capitalize on high global commodity prices.
  • Manganese (+21.2%) and coal (+14.2%) provided temporary support.

Manufacturing Production Plunges

  • Manufacturing output fell -3.3% y/y in January, far below expectations (-1.9% y/y).
  • Absa PMI fell for the 5th straight month, confirming a prolonged slump.
  • Trump’s tariffs on steel and aluminium will hit SA’s already struggling metals sector.

Key Takeaway: SA’s de-industrialisation is accelerating, exposing structural inefficiencies, failing infrastructure, and an uncompetitive regulatory environment.

Market Insight – FX

ZAR Remains Range-Bound Amid Uncertainty

  • USD-ZAR trading at 18.2975, stuck in a tight range despite budget turmoil and weak data.
  • Global risk sentiment remains fragile as Trump’s tariffs unsettle markets.
  • SA’s fiscal uncertainty has capped ZAR gains, despite a weaker USD.

Short-Term Outlook:

  • Political uncertainty → ZAR remains volatile.
  • Gold price at record highs → Supports SA’s terms of trade, limiting ZAR downside.
  • If budget negotiations fail → ZAR could weaken towards 18.4175.
  • If a credible compromise is reached → ZAR could test 18.0350.

Key Levels:

  • Support: 18.0350
  • Resistance: 18.4175

Market Insight – Bonds & Interest Rates

Bonds Reflect Fiscal Uncertainty

  • SA bond yields remain elevated, indicating investor skepticism about fiscal discipline.
  • Investors are waiting for clarity before committing to long-term SA debt.
  • Tuesday’s bond auction saw strong demand, but ILB auction results today will test sentiment.

FRAs Adjust Rate Cut Expectations

  • 3X6 FRA: 17bp rate cut priced in (-1bp on the day).
  • 6X9 FRA: 20bp cut (-4bp).
  • 9X12 FRA: 26bp cut (-4bp).
  • 12X15 FRA: 28bp cut (-3bp).

Why?

  • Budget uncertainty raises fiscal risk, slowing rate cut expectations.
  • US bond yields rose slightly, capping EM rate-cut potential.

Global Factors at Play

US Inflation Softens, But Risks Remain

    • US CPI fell to 2.8% y/y, core CPI at 3.1%

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