Daily Market Report 19 Feb
ZAR as a Barometer for Budget Confidence
Key Developments
- South Africa:
- Budget Day: GNU’s first fiscal roadmap to tackle debt, SOEs, and economic reforms.
- Unemployment: Drops below 32%, but remains critically high.
- Logistics Crisis: Losing R1bn per day due to infrastructure failures.
- Fiscal Priorities: Balancing social grants, tax policy, and private sector participation.
- Global:
- US-Ukraine Talks: Trump proposes elections as part of a peace deal.
- Fed Rate Path Uncertainty: FOMC minutes to offer clues on rate cuts.
- OPEC+ Oil Policy: Weighing production delays, supporting energy prices.
- EU Geopolitical Risks: Internal divisions over potential Ukraine troop deployment.
Market Insight – FX
- ZAR Performance:
- Spot: 18.4025 | Range: 18.2650 – 18.6350
- Budget Sensitivity: A well-received budget could push USD-ZAR below 18.3000.
- Key Drivers: Fiscal discipline, tax policy, SOE reforms, and foreign investor sentiment.
- Global FX Trends:
- USD Index: 107.01, with Fed rate path uncertain after mixed data.
- EUR/USD: 1.0450, cautious ahead of Fed minutes.
- GBP/USD: 1.2585, supported by strong UK wage growth.
- USD/JPY: 152.00, consolidating with support at 151.00.
Market Insight – Fixed Income
- US Treasuries & Global Bonds:
- UST Yields: 10-year at 4.52% (+4.1bp), driven by Fed policy uncertainty.
- FOMC Minutes: Could reinforce cautious Fed stance on rate cuts.
- SA Bonds & FRAs:
- Budget-Driven Sentiment: Investors await fiscal clarity before positioning.
- FRAs Show Muted Rate Cut Expectations:
- 3X6: 16bp cut priced in.
- 6X9: 18bp cut priced in (Q3).
- 9X12: 20bp cut (moderate easing expected).
- 12X15: 22bp cut (slow adjustment to policy shift).
Outlook:
-
- ZAR’s Reaction Post-Budget Will Be Telling:
- Stronger ZAR: Market confidence in fiscal strategy and reform execution.
- Weaker ZAR: Concerns over spending discipline, taxation, or lack of reform.
- USD Watch: Fed minutes, inflation data, and geopolitical risks could drive volatility.
- Key Levels:
- Support: 18.3000, break below could extend ZAR gains.
- Resistance: 18.6350, maintaining rangebound conditions for now.
- ZAR’s Reaction Post-Budget Will Be Telling:
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