Daily Market Report – 23 May 2025
South Africa: ZAR’s Run Stretched, but Fundamentals Remain Supportive
Key Domestic Developments
- Transnet Bailout: R51bn
- Objective: Debt refinancing and capital investment.
- Sentiment: Mixed. Bailout fatigue lingers, but debt rollover reduces systemic risk.
- Budget Realities
- No VAT hike, but “stealth taxes” (e.g., bracket creep, fuel levies) increase household burden.
- Rating agencies spared SA a downgrade, but market participants are watching execution.
- Inflation
- CPI ticks up to 2.8% y/y, still below SARB’s 3% floor.
- Market anticipating SARB on hold next week, with a pivot toward cutting in Q3.
- Bird Flu in Brazil
- Suspension of poultry imports = localized food inflation risk (chicken is SA’s key protein staple).
- Could complicate SARB’s read on inflation pass-through and delay easing slightly.
ZAR Outlook: Momentum Pauses, Correction Risk Rises
| Metric | Value |
|---|---|
| Spot | 17.9550 |
| Support | 17.8625 |
| Resistance | 18.1000 |
Technical & Flow Dynamics
- The ZAR rally is long in the tooth. Statistically, this move lies in the tail-end of historical distributions.
- Profit-taking is increasingly likely, especially into the weekend.
- USD weakness has carried the ZAR. If that trend pauses or reverses, expect USD-ZAR to rebound to 18.2000–18.3000 before resuming any appreciation.
FRA Market: Consolidation Mode
| FRA Tenor | Implied Cut |
|---|---|
| 2×5 | -24bp |
| 3×6 | 32bp |
| 6×9 | 40bp |
| 9×12 | 42bp |
| 12×15 | 44bp |
- One rate cut priced in, with a soft probability of a second cut in early 2025.
- Market reacting to:
- Inflation below target.
- SARB inflation targeting review.
- ZAR resilience + fiscal credibility post-budget.
Global Backdrop: USD Staggers, Bond Market Speaks Loudly
Trump’s “Beautiful Tax Bill” Fallout
- Narrow House approval (215–214) has spooked bond markets.
- Treasury yields spiked (20Y = 5.127%) as auction coverage thinned.
- Moody’s downgrade, combined with mounting debt projections (+$3.8trln), erodes investor confidence.
Dollar Outlook
- DXY flirting with 99.50 support.
- Overvaluation narrative growing among fund managers.
- FX sentiment increasingly favoring EUR, GBP, and EMFX (including ZAR).
Bonds: Watching the ILB Auction
-
- Two consecutive weak ILB auctions suggest investors see inflation risk as muted.
- Vanilla bonds remain bid, supported by:
- Lower CPI
- Strong ZAR
- Fiscal stabilisation signs
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