Daily Market Report 18 Mar

Daily Market Report – 18 March 2025

SA’s Economic Crossroads: Recalibrating Trade and Investment Priorities

Key Developments

SA Seeks to Diversify Trade Amid US Tensions

  • South Africa is actively exploring new trade relationships to reduce its dependency on the US.
  • The expulsion of Ambassador Rasool and potential revocation of AGOA privileges highlight the risks of over-reliance on a single major trading partner.
  • Increased BRICS+ engagement is a double-edged sword—expanding market access but straining Western relations.

ANC Rejects DA Proposal to Amend EWC & NHI Acts

  • The DA offered support for the budget in exchange for amending:
    1. Expropriation Without Compensation (EWC) Act—a key deterrent to foreign investment.
    2. National Health Insurance (NHI) Act—criticized for its feasibility and potential economic drag.
  • ANC refused, leaving the budget in limbo—risking further political uncertainty and market instability.

Petro-SA’s Russian Bank Deal in Trouble

  • US expands sanctions on Gazprombank, jeopardizing Petro-SA’s deal with Russia.
  • SA’s energy diversification strategy now faces new hurdles.
  • This raises questions on how SA balances Western sanctions with its BRICS+ relationships.

Israel Strikes Gaza in Biggest Attack Since Ceasefire

  • Geopolitical risks rise as Middle East tensions flare up again.
  • Potential oil price shocks could impact inflation and interest rate policies globally.

Market Insight – FX

ZAR Recovers Despite Diplomatic Fallout

  • The ZAR surprisingly strengthened despite rising US-SA tensions.
  • Key drivers:
    1. Gold prices hit a record high above $3,000/oz—boosting SA’s terms of trade.
    2. USD weakness amid trade war fears—reducing global demand for the greenback.
    3. Market confidence in Ramaphosa’s diplomatic response—SA avoided retaliatory rhetoric.

Short-Term Outlook:

  • Upcoming SARB decision: The SARB is expected to hold rates, maintaining SA’s high yield advantage.
  • USD under pressure: If US inflation continues slowing, the ZAR could benefit from a weaker dollar.
  • Gold rally impact: SA’s commodity-linked gains could fuel further ZAR strength.

Key Levels:

  • Support: 17.9700
  • Resistance: 18.2875

Spot at time of writing: 18.1000
Range for the day: 17.97 – 18.2875

Market Insight – Bonds & Interest Rates

Bonds Remain Weak Despite ZAR Gains

  • SA bond yields remain elevated, reflecting uncertainty over fiscal risks.
  • Investors await clarity on the final budget negotiations—fiscal concerns persist.

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 uncertainty from the budget deadlock.
  • SARB expected to hold rates, supporting bonds in the short term.
  • US Fed’s dovish tilt could boost SA bonds, narrowing yield spreads.

Global Macro Factors at Play

Gold Prices Break $3,000/oz

  • China & India’s central bank gold purchases are driving up demand.
  • Gold’s rally strengthens the ZAR, as SA’s mining sector benefits.
  • If this trend continues, ZAR could test 17.9700 again.

US Fed Meeting & Rate Outlook

  • Soft inflation data → Fed could accelerate rate cuts.
  • Markets now expect three rate cuts in 2025, first in June/July.

Trump’s Trade War & Market Volatility

  • New tariffs on EU, Mexico, and China are fueling global uncertainty.
  • Stock market selloffs could drive safe-haven USD demand, capping ZAR gains.

BoJ Expected to Hike Rates

  • A stronger yen could limit ZAR upside if risk-off sentiment dominates.
  • Japanese investors shifting into US Treasuries could impact global liquidity.

Final Thoughts: What’s Next?

Budget Risks Remain:

  • GNU deadlock could delay fiscal reforms, keeping bond yields elevated.
  • If budget talks collapse, expect ZAR volatility.

Gold & USD Key to ZAR Direction

      • Sustained gold rally + weaker USD = ZAR bullish scenario.
      • If risk appetite deteriorates, ZAR could stall near 18.2875.

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