Government Clean-Up Boosts Budget Prospects

President Cyril Ramaphosa removed Higher Education Minister Nobuhle Nkabane from her post amid mounting pressure over corruption allegations. This move could help secure the passage of the 2025/26 Appropriations Bill, scheduled for a vote on July 23. With the DA demanding further action, especially targeting Human Settlements Minister Thembisile Simelane, the government is navigating a critical test of the new Government of National Unity (GNU). Political analysts see the removal as a strategic win for both transparency and coalition harmony.

Further tightening the screws on accountability, Ramaphosa also suspended top prosecutor Advocate Andrew Chauke over accusations of stalling high-profile corruption cases. This follows explosive allegations from Lieutenant-General Mkhwanazi, who accused Police Minister Senzo Mchunu of protecting criminal networks in KwaZulu-Natal. With these developments, the GNU is showing intent to restore institutional integrity.

ZAR Strengthens on Political Stability and Weaker USD

The ZAR extended gains, strengthening to 17.61/USD, buoyed by a weaker dollar and increasing optimism around the passage of South Africa’s budget. The decline in the USD, driven by trade war fears, has helped the ZAR test key support levels, with 17.47/USD now in focus. Markets are responding positively to signs that South Africa’s new political configuration may deliver accountability, something seen as crucial for foreign investor sentiment.

The global environment also supports ZAR appreciation. The DXY index fell below 98.00, weakened by market concerns over Trump’s tariff strategy. Traders expect continued ZAR gains should the budget clear parliament and US dollar weakness persists into August.

SA Bond Market Rides Political Tailwinds

South African bonds firmed amid expectations of reduced fiscal risk and a rising ZAR. The yield on the benchmark R2032 remains under pressure as investors price in greater political stability and lower inflation risks. The leading indicator dipped slightly to 112.8 in April, reflecting earlier political turmoil and global uncertainty, but markets expect conditions to improve in May.

Ahead of this week’s inflation release and next week’s MPC meeting, FRAs show a market increasingly sceptical of further SARB rate cuts. The 3×6 FRA has compressed to imply just one more rate cut this year, reinforcing the idea that interest rates will remain steady unless inflation surprises lower.

Global Bonds Rally on Safe-Haven Demand

US 10-year Treasury yields dropped to 4.37%, driven by heightened demand for safe-haven assets as Trump’s August 1 tariff deadline looms. European bonds also rallied. Traders are concerned that a failure in US-EU trade negotiations could trigger a 30% tariff shock, adding to global economic uncertainty.

Oil, Grains and Metals Swayed by Trade and Weather Risks

Energy Markets:

Oil prices continued to slide, with Brent near $69 and WTI around $67, as trade fears and increased OPEC+ supply pressured prices. US officials hinted at secondary sanctions on countries buying Russian oil, raising the stakes in global energy markets.

Soft Commodities:

Soybeans, corn, and wheat fell on the back of favourable US weather forecasts and bearish speculative positioning. Brazil’s raised corn output projections added further downside pressure.

Metals:

Gold surged to $3,396/oz, nearing a one-month high, benefiting from risk-off sentiment and a weaker USD. Copper also jumped to nearly $9,885/ton, supported by robust Chinese demand and falling US scrap exports amid looming tariffs.

Macro Outlook: US-China Tensions Escalate Beyond Trade

US Treasury Secretary Scott Bessent signaled that upcoming US-China trade talks could broaden to address China’s oil dealings with Russia and Iran. The shift marks a strategic pivot from pure trade concerns to national security. Bessent floated the possibility of 100% secondary tariffs for countries violating sanctions—adding to geopolitical risk.