Daily Market Report 19 May

Daily Market Report – 19 May 2025

    • Trump’s tax bill fails House Budget
    • Deficit-to-GDP projected to hit 134% by 2035
      • Trump may use the meeting to signal foreign policy strength
      • Worst case = more tariffs, sanctions, or cuts in US-funded programs
        • R25bn/year savings target = ~1% of annual spending
        • Most pressure will fall outside social services and infrastructure

          Main Themes: ZAR Strength Anchored in Policy & Politics

          1. Budget: No VAT Hike, All Reform

          The third budget iteration aims to cut R75bn over three years through waste elimination—not tax hikes. This marks:

          • A break from procyclical taxation
          • A focus on efficient allocation vs. expanding the state
          • Potential structural reform credibility if execution follows

          Key Stats:

        2. S&P Ratings: Positive Outlook Reaffirmed

        • BB- rating upheld
        • Positive outlook maintained
        • Acknowledges:
          • Fiscal discipline (even with VAT off the table)
          • GNU stability
          • Policy reform momentum (Operation Vulindlela, inflation target)

        But warns:

        • Growth remains low (1.3% 2025, down from 1.6%)
        • Risks from US-SA relations and structural reform delays

        3. Ramaphosa Heads to Washington: High-Risk Diplomacy

        Expectations:

        • Attempt to reset ties post-ICC/Israel and Russia alignment frictions
        • Possible US energy concessions (SA LNG deals for goodwill)
        • Trade, HIV/Aids funding, and tariff rollbacks are on the table

        Risks:

      ZAR Market View: Still in Breakout Mode

      Metric Value
      Spot 18.0650
      Support 17.9850 → potential breakout
      Resistance 18.2800

      A clean break below 17.9850 triggers:

      • Resumption of March’s bullish trend
      • Target zone: 17.60–17.75

      ZAR Upside Drivers:

      • Fiscal reform optimism
      • Monetary reform credibility
      • Global inflation moderation
      • USD fatigue post-Moody’s US downgrade

      FRA Curve: SARB Cut Odds Fade, Real Rates Remain High

      FRA Tenor Implied Cut
      2X5 22bp
      3X6 34bp
      6X9 38bp
      9X12 44bp
      12X15 44bp
      • Inflation target drop talk → hawkish tilt
      • Only 1–2 cuts expected this year
      • Supports carry inflows and further ZAR upside

      Global FX & Rates Context

      Dollar Mixed

      • Positive US data + Michigan inflation expectations surged to 7.3%
      • But Moody’s downgrade to AA1 clouds outlook
      • Treasury yields spiked (10Y → 4.499%), risk appetite slightly dented

      US Fiscal Concerns

    Bonds: Strong ZAR = Stronger Sentiment

    • Bonds are now rallying alongside ZAR
    • ILB auction weak again = reflects declining inflation expectations
    • Vanilla bond demand surging as real yields remain high
    • Budget and inflation targeting comments could compress long-end yields post-budget

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