Daily Market Report 18 Feb

Daily Market Report 18 Feb

ZAR Resilient Amid BRICs+ Tensions and Budget Focus

Key Developments

  • South Africa:
    • BRICs+ Spotlight: Mantashe’s openness to Russian and Iranian nuclear bids sparks concern.
    • US-South Africa Tensions: Strained relations raise speculation about partial sanctions.
    • Budget Anticipation: Focus on reforms, fiscal rules, and private-sector inclusion.
    • IMF Guidance: Debt reduction critical to boosting SA’s growth outlook.
  • Global:
    • US-Russia Peace Talks: Potential agreement on Ukraine sidelines EU, boosts EUR.
    • OPEC+ Caution: Possible delay in supply hikes may sustain oil prices and USD yields.
    • RBA Rate Cut: First cut since the pandemic, but dovish outlook capped.
    • US Bond Market: Retail sales slump fuels rate cut bets, driving UST yields lower.

Market Insight – FX

  • ZAR Performance:
    • Spot: 18.4475 | Range: 18.2650 – 18.6350
    • Gold Surge: Supports ZAR as prices remain elevated on global demand.
    • USD Pressure: Weaker on softer PPI and concerns over Trump’s tariff war risks.
    • Support Levels: Break below 18.3000 opens path to 18.2650.
  • Global FX Trends:
    • USD Index: 106.60, under pressure from soft US retail sales.
    • EUR/USD: 1.0450, boosted by Ukraine peace talk optimism.
    • GBP/USD: 1.2585, supported by positive UK GDP surprise.
    • USD/JPY: 151.22, with strong support at 151.00 amid UST yield moves.

Market Insight – Fixed Income

  • US Treasuries & Global Bonds:
    • UST Yields Decline: 10-year at 4.48% (-5.3bp) on weak retail sales.
    • Rate Cut Expectations: Markets price in 37bp easing by year-end.
    • RBA Cut: Aligns with a global shift towards cautious easing.
  • SA Bonds & FRAs:
    • Budget Anticipation: Yield curve in consolidation, awaiting fiscal guidance.
    • FRAs Reflect Conservative Easing Outlook:
      • 3X6: 16bp cut priced in.
      • 6X9: 21bp cut priced in (Q3).
      • 9X12: 24bp cut (full rate cut expected).
      • 12X15: 28bp cut (moderate easing expectation).

Outlook:

    • ZAR to Remain Rangebound: Supported by gold, capped by geopolitical tensions.
    • Budget to Drive Sentiment: Reform focus crucial for bond market and credit outlook.
    • US Policy Uncertainty: Trump’s tariffs and sanctions talk could add volatility.
    • Global Easing Cycle: RBA signals cautious rate cuts, setting a precedent.
    • Key Levels: USD-ZAR break below 18.3000 opens path to 18.2650 support.

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