Daily Market Report 19 Mar

Daily Market Report – 19 March 2025

SA Faces Critical Economic and Policy Crossroads Amid Global Uncertainty

Key Developments

VAT Hike Still on the Table, But Parliament Holds the Cards

  • Finance Minister Enoch Godongwana maintains he can raise the VAT rate if needed, but parliamentary approval is required.
  • This keeps fiscal uncertainty high, as a VAT hike would be deeply unpopular among GNU partners.
  • If the VAT increase fails to pass, alternative revenue streams will be urgently needed.

SA Pushes for G20 Support on African Trade Zone

  • The African Continental Free Trade Area (AfCFTA) remains a key focus for SA’s economic growth strategy.
  • The goal is to unlock intra-African trade opportunities and reduce dependence on US and EU markets.
  • With US-SA relations strained, SA is seeking more diversified trade partnerships to hedge geopolitical risks.

Gauteng Sounds the Alarm on Liquidity Crisis

  • The province’s R527.2bn budget highlights significant fiscal pressure.
  • Despite record allocations to infrastructure and health, the Gauteng government warned of a liquidity crunch.
  • This is part of a broader fiscal squeeze, reflecting South Africa’s deteriorating debt metrics.

Putin Agrees to Pause Strikes on Ukrainian Energy Grid

  • Trump-brokered deal secures a 30-day ceasefire on Russian attacks on Ukraine’s energy infrastructure.
  • Potential for reduced oil price volatility, which could benefit global inflation trends.
  • Markets await Russia’s response and Ukraine’s willingness to reciprocate.

Market Insight – FX

ZAR Steady Despite VAT and Budget Uncertainty

  • The ZAR remains surprisingly resilient, trading near 18.1500.
  • Key drivers:
    1. USD remains under pressure amid rising fears of a US economic slowdown.
    2. Gold price surge beyond $3,000/oz is supporting SA’s trade balance.
    3. Fed expected to keep rates unchanged—reinforcing the ZAR’s carry trade appeal.

Short-Term Outlook:

  • FOMC meeting tonight will be a major event, with markets watching for signs of rate cuts.
  • SARB rate decision tomorrow—if rates are held steady, the ZAR may stabilize further.
  • Gold remains a key tailwind—as long as prices remain elevated, ZAR should maintain its current range.

Key Levels:

  • Support: 17.9700
  • Resistance: 18.2875

Spot at time of writing: 18.1500
Range for the day: 17.97 – 18.2875

Market Insight – Bonds & Interest Rates

Bonds Hold Steady Amid Fiscal Concerns

  • SA bond yields remain elevated, reflecting concerns over fiscal risks and uncertainty around the VAT increase.
  • Demand for yesterday’s auction remained robust, despite growing liquidity concerns.

FRAs & Rate Expectations

  • 3X6 FRA: 20bp rate cut priced in.
  • 6X9 FRA: 24bp cut for Q3.
  • 9X12 FRA: 27bp cut.
  • 12X15 FRA: 28bp cut.

Key Risks:

  • If VAT hike is rejected, expect bond yields to remain high due to fiscal uncertainty.
  • Fed decision tonight will impact US Treasury yields, influencing global bond flows.
  • SARB rate decision tomorrow will determine if bond yields find relief.

Global Macro Factors at Play

Gold Prices Beyond $3,000/oz

  • China & India’s central banks continue aggressive gold purchases.
  • ZAR benefits from this rally, as gold exports boost SA’s trade position.
  • If this trend continues, ZAR could push towards 17.9700.

Fed Policy & US Economic Slowdown

  • Market expects Fed to keep rates unchanged tonight.
  • Rate cuts expected by July, which would further weaken the USD.
  • If Fed signals a more cautious stance, USD may rebound, capping ZAR gains.

Trump’s Trade War & Market Volatility

  • New tariffs remain a wildcard—disrupting global supply chains.
  • If stock markets correct sharply, risk aversion could pressure emerging markets.

BoJ Keeps Rates Unchanged

  • Yen remains weak, driving capital flows into higher-yielding markets like SA.
  • A stronger yen could cap ZAR’s upside if risk-off sentiment emerges.

Final Thoughts: What’s Next?

Budget Risks Remain:

  • GNU deadlock over VAT keeps fiscal uncertainty high.
  • Investors will closely monitor parliamentary negotiations.

Gold & USD Key to ZAR Direction

      • If gold continues surging, ZAR has room to strengthen.
      • If Fed hints at rate cuts, USD may weaken further—supporting ZAR

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