Daily Market Report 17 Mar

Daily Market Report – 17 March 2025

Market Update: ZAR Holds Firm Despite US-South Africa Diplomatic Clash

Political & Economic Developments

SA-US Diplomatic Tensions Rise Amid Rasool’s Recall

The expulsion of SA’s ambassador to the US, Ebrahim Rasool, has further strained relations between South Africa and the Trump administration. Rasool’s controversial remarks against Trump led to his removal, with US Secretary of State Marco Rubio labeling him a “race-baiting politician”. While Rasool’s comments were the trigger, this diplomatic fallout is rooted in broader tensions, including:

  • SA’s stance against Israel at the ICC.
  • BRICS+ alignment & relations with Russia and Iran.
  • “Lady R” scandal and SA’s defense cooperation with Russia.
  • Expropriation Without Compensation (EWC) policy & Trump’s pushback.

The US has already cut funding to SA and could accelerate the removal of AGOA benefits, severely impacting SA’s auto, mining, and agriculture exports. However, the US still relies on SA’s key minerals (chrome, platinum, manganese, vanadium), which means a total breakdown is unlikely. Instead, the Trump administration is expected to favor bilateral negotiations for new trade terms.

Treasury Considering Two Fiscal Anchors

  • The SA Treasury is debating two fiscal anchors to replace its debt-to-GDP target:
    1. A primary budget surplus rule to ensure government revenue exceeds non-interest spending.
    2. An expenditure ceiling to limit real spending growth.

Why it matters: Investors want concrete fiscal discipline. If implemented credibly, this could support SA bonds and the ZAR.

SARB Rate Decision & Global Central Bank Meetings

  • The SARB, Fed, BoJ, and BoE all announce monetary policy decisions this week.
  • SA inflation data & retail sales figures will offer insights into the economic backdrop.
  • With Trump’s trade war escalating, rate cuts in the US and EU may happen sooner.

Market Insight – FX

ZAR Ignores Rasool Recall, Focuses on Gold & USD

  • The ZAR remains resilient despite SA’s diplomatic spat with the US.
  • The gold price surge past $3,000/oz is a major tailwind for the ZAR.
  • The USD is weaker ahead of the Fed meeting, improving emerging market sentiment.
  • Risk appetite is improving, as global equity markets recover.

Short-Term Outlook:

  • Key SARB decision → A hold on rates could keep the ZAR supported.
  • US Fed outlook → A dovish Fed could trigger a ZAR rally.
  • If risk sentiment improves, expect ZAR to test 18.0000 again.

Key Levels:

  • Support: 18.0350
  • Resistance: 18.4175

Spot at time of writing: 18.2100
Range for the day: 18.0350 – 18.4175

Market Insight – Bonds & Interest Rates

Bond Yields Rise as Fiscal Risks Persist

  • SA bond yields ticked higher last week due to budget uncertainty.
  • The yield curve remains steep, reflecting structural fiscal risks.
  • SARB decision & Fed guidance this week could impact bond demand.

FRAs & Rate Expectations

  • 3X6 FRA: 18bp rate cut priced in.
  • 6X9 FRA: 21bp cut for Q3.
  • 9X12 FRA: 26bp cut.
  • 12X15 FRA: 28bp cut.

What’s driving this?

  • Fiscal risks keep yields elevated.
  • SARB is expected to hold rates, keeping carry trade attractive.
  • US Fed’s dovish tilt could boost SA bonds.

Global Macro Factors at Play

Gold Prices Surge to $3,000/oz

  • Safe-haven demand surges amid US-China trade war escalation.
  • Gold miners & SA’s trade balance benefit → ZAR-positive.

US Fed Meeting & Rate Outlook

  • Inflation softened to 2.8%, but Fed remains cautious.
  • Markets expect two rate cuts in 2025, first in July.

Trump’s Trade War & Market Volatility

  • New tariffs on EU & Mexico loom, fueling global uncertainty.
  • Stocks remain fragile, with US consumer confidence plunging.

BoJ Policy Shift Expected

  • Yen strength could impact global risk flows.
  • A stronger yen could limit ZAR upside if risk-off dominates.

Final Thoughts: What’s Next?

Budget Risks Remain:

  • If GNU tensions persist, expect more ZAR volatility.
  • If the budget stalls, bonds could weaken further.
  • Fiscal anchors must be credible to restore confidence.

Gold & USD Key to ZAR Direction

    • If gold keeps rising & USD stays weak, ZAR could rally.
    • If risk sentiment deteriorates, ZAR may struggle near 18.4000.

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