24 Jan

Daily Market Report 24 Jan

ZAR Gains on Weak USD, Easing Fed Rate Expectations

Key Developments

  • South Africa:
    • Expropriation Bill: President Ramaphosa signed a bill allowing land expropriation with equitable compensation. While the move raises concerns over investor sentiment, it highlights ideological divides within the GNU.
    • Marketed Reforms: Positive messaging at the WEF in Davos emphasized fiscal reforms, investment-grade aspirations, and private sector inclusion, bolstering sentiment despite risks from the Expropriation Bill.
    • Economic Data: With no domestic releases until Tuesday, focus shifts to global indicators like PMIs and US Treasury yields.
  • Global Developments:
    • US: Trump avoided immediate tariffs but warned of future actions, influencing Fed rate expectations and USD sentiment. His call for lower interest rates and oil prices added to market uncertainty.
    • Japan: The BoJ raised rates to 0.5%, marking a 17-year high, reflecting confidence in sustained wage growth and inflation stabilization.

Market Insight – FX

  • ZAR:
    • Spot: 18.4100; Range: 18.23/6150.
    • The ZAR benefited from a weaker USD as Fed rate-cut expectations adjusted. A modest EM FX relief rally followed Trump’s lack of new tariffs and dovish rhetoric.
    • Risks remain, as the tariff threat limits further appreciation. The 50-session moving average around 18.4000 serves as immediate technical support, with resistance at 18.6150.
  • Global FX:
    • The USD weakened as Trump’s comments on trade and lower rates fueled speculation of easier monetary policy. The EUR/USD consolidated near 1.0440, while the yen strengthened after the BoJ rate hike.

Market Insight – Fixed Income

  • SA Bonds:
    • South African bonds have performed strongly, with yields dropping by ~25bps across the curve, supported by softer CPI data and strong auction demand. Today’s inflation-linked bond auction (I2031, I2043, I2058) will provide further insights into inflation expectations.
    • Outlook: Current pricing indicates one full SARB rate cut in Q1 and a 50% chance of a second later in the year.
  • Global Bonds:
    • US Treasuries saw easing yields amid Trump’s less aggressive trade stance and dovish rhetoric, with the 10-year yield at 4.54%. The BoJ’s rate hike lifted Japanese government bond yields, marking a shift from previous ultra-loose policies.

Outlook

  • ZAR: While the USD’s softness supports the ZAR, tariff risks and fragile global sentiment could limit further gains.
  • Monetary Policy: With the SARB, Fed, and ECB meetings ahead, central bank guidance will heavily influence FX and bond markets.
  • Global Risks: Trump’s policy clarity and ongoing BoJ normalization will remain key drivers for market sentiment and risk appetite.

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