Daily Market Report 24 Feb

Daily Market Report 24 Feb

ZAR Strengthens as USD Weakens and SA Moves Closer to Greylist Exit

Key Developments

  • South Africa:
    • Greylist Exit on Track: National Treasury targets October 2025 for removal from the FATF greylist.
    • Eskom Relief for Solar Consumers: New policy to reduce solar tariff burden.
    • Load Shedding Update: Energy Minister assures blackouts to cease by the weekend.
  • Global:
    • USD Weakens on Growth Concerns: Fed officials warn tariffs may fuel inflation, delaying rate cuts.
    • Germany’s Election Shifts EU Policy: Conservative win strengthens calls for economic independence from the US.
    • US-Ukraine Talks: Trump pushes elections as part of a peace deal, potentially altering EU’s role in negotiations.

Market Insight – FX

  • ZAR Performance:
    • Spot: 18.3300 | Range: 18.2650 – 18.6350
    • Drivers of ZAR Strength:
      • Weaker USD: USD Index falls to lowest since Dec 2024 on weaker data and tariff uncertainty.
      • Gold Rally Continues: Rising 50% in 14 months, with China and India accelerating gold purchases.
      • Foreign Investors Reassess SA: Expected greylist exit boosts investment sentiment.
    • Risks:
      • SA budget uncertainty remains, as Treasury seeks fiscal alternatives to VAT hikes.
      • Inflation data quality concerns could impact SARB’s monetary policy credibility.
  • Global FX Trends:
    • USD Index: 106.50, weaker as Fed concerns grow over Trump’s policies.
    • EUR/USD: Holding at 1.0508, boosted by German election results.
    • GBP/USD: Hits new 2025 high of 1.2690, with investors favoring buying on dips.
    • USD/JPY: Below 150.00, yen strengthens as BoJ signals potential tightening.

Market Insight – Fixed Income

  • US Treasuries & Global Bonds:
    • UST Yields Slide: 10-year at 4.4%, marking sixth straight weekly decline.
    • Fed Rate Cut Expectations Shift: Markets now price first cut in July, not September.
  • SA Bonds & FRAs:
    • Greylist Exit Optimism May Drive Foreign Inflows:
      • Foreign ownership of SA bonds dropped from 42% to 24% but could rebound.
      • National Treasury’s goal to regain investment grade within two years boosts sentiment.
    • FRAs Reflect Stable Rate Expectations:
      • 3X6 FRA: 12bp cut priced in (limited easing expected).
      • 6X9 FRA: 14bp cut, signaling a cautious Q3 rate outlook.
      • 9X12 FRA: 17bp cut, suggesting rates may stay unchanged in 2025.

Outlook:

    • ZAR Could Strengthen Further If:
      • Budget Revisions Focus on Fiscal Discipline instead of tax hikes.
      • USD Continues Weakening, as global investors reassess Trump’s economic policies.
      • Gold Prices Remain Strong, improving SA’s trade balance.
    • Key Levels to Watch:
      • Support: 18.3000, break below opens path to 18.0000.
      • Resistance: 18.6350, as market uncertainty caps further gains.

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