Daily Market Report – 2 Apr 2025

ZAR Tumbles on Budget Doubts & Global Tariff Turmoil

ZAR Slides as GNU Teeters, Budget Compromise Looks Fragile

The ZAR opened weaker today, trading at 18.51/USD, down nearly 25 cents from Monday morning. This marks a clear market rejection of both the budget compromise process and the fractious GNU politics, with key concerns including:

• The DA likely to vote against the budget, citing the VAT hike
• ANC striking deals with parties outside the GNU (e.g., Action SA, BOSA), raising legitimacy questions
• Risk that the GNU’s credibility is being undermined, even if it technically survives

This isn’t just about passing a budget—it’s about how it’s passed. If consensus breaks down and the GNU becomes a transactional coalition, investor confidence will erode further.

Budget: Three Reasonable Pillars, One Problematic Pillar

Positive Reforms:

1. SOE Private Sector Inclusion – Long overdue; could attract FDI
2. Digital & Procurement Reform – Could reduce corruption & inefficiencies
3. Cutting Regulatory Red Tape – Pro-business shift, if implemented credibly

Red Flag: 4. VAT Increase – Poorly timed, regressive, and unlikely to lift revenues meaningfully in a weak economy

The structure’s better than feared, but the financing mechanism (VAT hike) could choke growth just as external headwinds (Trump’s tariffs, global slowdown) intensify.

Market Insight – ZAR

• Spot: 18.5100
• Range: 18.3000 – 18.7250
• Support: 18.3000
• Resistance: 18.7250 (next key level)

Price Drivers:

• GNU instability – ZAR negative
• Budget complexity – ZAR uncertain
• Rising gold prices marginal – ZAR positive
• Weak USD – ZAR resilient (if local politics weren’t imploding)

Bond Market – Defying the Rand’s Path

Despite ZAR weakness, SA bonds are rallying modestly, reflecting:

• Wider US-ZA yield spread (now 667bp)
• Global Treasury rally as equities crack
• Hopes that budget finally gets done, removing some fiscal overhang

Even in a tough global environment, SA real yields >8% are highly attractive. Once political noise fades, bond bulls could dominate if reforms materialize and spending restraint proves real.

FRAs Holding Steady

FRAs are cautiously reflecting one full SARB cut in 2025, in line with global dovish pivots.

Global – Trump Tariffs Hit at 20:00 GMT

• Broad-based tariffs on vehicles and parts from all countries
• EUR and GBP weaker, not seen as safe havens
• Gold stable above $3,070, but vulnerable if equities crash
• USD Index flat, but market is clearly risk-averse

Macro View: A full-blown stagflation scenario is now in play for the US—slowing growth + cost-push inflation = Fed stuck. Markets are betting on rate cuts, but the Fed may be behind the curve on the growth shock.

Strategic Call

• • ZAR likely stays on the back foot until budget is passed with GNU credibility intact
  • Bonds remain supported, but volatility will rise if GNU cracks completely
  • Gold remains a key buffer, but beware of demand-side shocks

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