15 Jan

Daily Market Report 15 Jan

US Inflation Dynamics Shape Market Expectations

Domestic Developments

  • Housing: Joburg house prices show signs of stabilising and recovering.
  • Labour Compliance: Non-compliance with minimum wage laws is rising.
  • Education: Government misses 2024 targets for quality physical science passes.

Global Focus

  • US Producer Prices: December PPI rose 3.3% y/y, missing expectations, but bond markets remain resilient, reflecting structural drivers like ongoing quantitative tightening and high bond issuance.
  • Today’s US CPI Data: Expected to influence monetary policy and bond yields globally, with forecasts pointing to further USD strength.
  • China: The PBoC halts bond purchases to stabilize the yuan amidst falling bond yields and rising pressure on its exchange rate.

Market Insight – FX

  • ZAR: The ZAR recovered slightly below 19.00, supported by its undervaluation, though volatility persists due to strong USD performance.
    • Spot: 18.9400; Range: 18.91/19.2400.
  • USD: Strong speculative demand for USD persists, with a long-term Fibonacci target of 111.185 in sight.

Market Insight – Fixed Income

  • US Bond Yields: Elevated yields (10-year at 4.76%) reflect persistent inflation and quantitative tightening, crowding out investment in riskier markets.
  • SA Bonds: Rate cut expectations moderate further; only one 25bp rate cut is priced for 2025, with the 1X4 FRA spread at -18bp.

Global Trends

  • Global Bond Sell-Off: High US yields pressure global bond markets, widening the yield gap with China and increasing volatility.
  • PBoC Actions: The PBoC suspends bond purchases to stabilize markets and prevent yuan overshooting.

Conclusion: Inflation dynamics and quantitative tightening keep bond yields elevated and the USD strong. Domestic reforms and clearer fiscal strategies remain critical for SA amidst global pressures.

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