20 Jan

Daily Market Report 20 Jan

ZAR Stages Recovery Amid Positive Signals from China

Domestic Developments

  • Key Data Releases: Focus this week will be on inflation (expected at 3.2% y/y), retail sales, and mining production, which will gauge economic performance and the impact of recent rate cuts.
  • Business Confidence: SACCI survey indicates improving trade conditions, suggesting better sentiment.
  • Infrastructure: IEA data highlights a pipeline of 16 new coal projects in SA, projected to produce 40 million tonnes annually.
  • Government Commitments: Plans to leverage WEF engagements and public-private collaborations to boost fixed investment.

Global Highlights

  • Trump Inauguration: Markets await clarity on economic policies, including tariffs, tax cuts, and fiscal strategies. Trump’s initial policy moves will shape market sentiment.
  • China’s Upside: Better-than-expected Q4 GDP growth (5.4%) has lifted optimism among China-exposed economies, boosting currencies like the ZAR.

Market Insight – FX

  • ZAR:

    • Spot: 18.6900; Range: 18.5250/9050.
    • The ZAR has rebounded strongly, trading below 18.70, recovering from last week’s high of 19.20, driven by optimism over China and position squaring ahead of Trump’s inauguration.
    • Improved Chinese relations and stable CNY lend support to ZAR, though caution remains regarding China’s structural challenges.

  • USD:

    • USD Index hovered around 109.40 after recent strength from resilient housing and manufacturing data.
    • Divergent monetary policies between the Fed (likely to pause rate cuts) and ECB (more easing expected) maintain the USD’s yield advantage.

Market Insight – Fixed Income

  • SA Bonds:

    • Domestic yields reflect global trends, with the SARB potentially holding back on multiple rate cuts amid moderating inflation and fiscal concerns.
    • FRAs:
      • 1X4 FRA: Stabilized at 16bp (low rate cut expectations).
      • 3X6 FRA: Dropped to -24bp, signaling potential Q1 rate cut.

  • Global Bonds:

    • US Treasury yields rose slightly on Friday following strong US housing and manufacturing data.
    • Two-year yield: 4.272% (+3.4 bps); 10-year yield: 4.613% (+0.1 bps).
    • Investors remain cautious ahead of Trump’s inauguration and Monday’s US holiday.

Outlook

  • Domestic Focus: Inflation data and mining production figures will provide insights into economic performance, while structural issues (infrastructure and fiscal constraints) remain key challenges.
  • Global Factors: Trump’s policy announcements and US data will drive market sentiment, with the ZAR poised for further volatility depending on global developments.

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