Daily Market Report 20 Feb

Daily Market Report 20 Feb

SA Budget Postponement: A Strategic Retreat or GNU Fracture?

Key Developments

  • South Africa:
    • Budget Postponed to March 12 amid GNU divisions over a 2% VAT hike.
    • Public Sector Wage Agreement Signed, raising spending concerns.
    • Investors Mixed—cautious optimism if postponement leads to better fiscal discipline.
    • SA Losing R1bn/Day to Logistics Failures, highlighting infrastructure crisis.
  • Global:
    • Fed Minutes—FOMC officials worried about tariffs’ inflationary impact.
    • Trump’s Trade War Escalation: New reciprocal tariff framework in the works.
    • US-Ukraine Talks: Trump suggests elections as a precondition for peace.
    • BoE Rate Cut Hopes Fade: Strong UK wage growth slows dovish bets.

Market Insight – FX

  • ZAR Performance:
    • Spot: 18.5000 | Range: 18.2650 – 18.6350
    • Budget Postponement Impact:
      • Short-term uncertainty adds volatility.
      • If revised budget reduces reliance on tax hikes, ZAR may rally.
    • Global Factors: USD-ZAR also influenced by Fed minutes, trade war risks, and inflation trends.
  • Global FX Trends:
    • USD Index: Hovering around 107.00, cautious ahead of key US data.
    • EUR/USD: 1.0420, bearish sentiment on global risk-off trades.
    • GBP/USD: 1.2590, resilient post-strong UK inflation data.
    • USD/JPY: 151.00, strengthening yen as BoJ signals tighter policy.

Market Insight – Fixed Income

  • US Treasuries & Global Bonds:
    • UST Yields: 10-year at 4.52% (+4.1bp), reflecting policy uncertainty.
    • Fed Signals Rate Cuts Are Not Imminent, adding pressure on bonds.
  • SA Bonds & FRAs:
    • Budget Delay Impacts Bond Market:
      • Initial uncertainty caused bond yields to rise.
      • If revised budget leans toward expenditure cuts over tax hikes, expect bullish bond response.
    • FRAs Show Recalibration of Rate Expectations:
      • 3X6 FRA: 12bp cut priced in (marginal easing).
      • 6X9 FRA: 12bp cut (Q3 easing still on the table).
      • 9X12 FRA: 13bp cut (minimal adjustments in rate path).
      • 12X15 FRA: 14bp cut (expect stability unless policy shifts significantly).

Outlook:

  • ZAR’s Response in the Next Few Weeks is Key:
    • Stronger ZAR: Market optimism that budget revision will favor fiscal prudence.
    • Weaker ZAR: Concerns over tax hikes, fiscal slippage, or lack of policy clarity.
  • Fed Policy & Trade War Escalation in Focus:
    • Tariff Risks Could Boost USD Volatility—monitor reciprocal tariff threats.
    • US Inflation Data Will Shape Fed’s Rate Path—could impact ZAR via global risk sentiment.
  • Key Levels:
    • Support: 18.3000, break below strengthens ZAR outlook.
    • Resistance: 18.6350, budget uncertainty could test this level.

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