Daily Market Report 25 Feb

Daily Market Report 25 Feb

ZAR Stands to Appreciate Amid Weakening USD and Fiscal Consolidation Efforts

Key Developments

  • South Africa:
    • Greylist Exit on Track: National Treasury confirms October 2025 as the target date.
    • Budget Uncertainty Persists: Debate intensifies over VAT alternatives and civil service reform.
    • Load Shedding Blamed on Maintenance Issues: Government remains committed to ending blackouts.
  • Global:
    • USD Weakens as Rate Cuts Get Priced In: Fed funds futures now reflect 50bp of cuts by December 2025.
    • Trump Tariff Risks Weigh on Growth: Markets expect trade retaliation to hurt the US economy.
    • Germany’s Election Impact: Conservatives win but face opposition from far-left and far-right coalitions.

Market Insight – FX

  • ZAR Performance:
    • Spot: 18.3400 | Range: 18.2650 – 18.6350
    • Drivers of ZAR Strength:
      • Weaker USD: USD Index slides as US Treasury yields decline.
      • Gold Rally Continues: Elevated demand from China, India, and global central banks.
      • Budget Optimism: Fiscal consolidation efforts could boost SA’s credit rating prospects.
    • Risks:
      • Budget uncertainty remains, and failure to curb wasteful expenditure could weaken sentiment.
      • US Tariffs Could Disrupt Trade: Reciprocal tariffs may impact global growth and risk appetite.
  • Global FX Trends:
    • USD Index: 106.50, weakening as Fed policy expectations shift dovish.
    • EUR/USD: Holding near 1.0508, as Germany’s election outcome raises policy uncertainty.
    • GBP/USD: 1.2690, supported by persistent inflation and strong UK economic data.
    • USD/JPY: Bounces above 150.00, as traders unwind short positions, but downside bias remains.

Market Insight – Fixed Income

  • US Treasuries & Global Bonds:
    • UST Yields Slide: 10-year at 4.4%, declining for a fourth consecutive session.
    • Market Bets on Rate Cuts: Fed futures price in two cuts by year-end, shifting expectations.
  • SA Bonds & FRAs:
    • Foreign Investors Reassess SA:
      • Bond market participation declined from 42% to 24% but could rebound if SA exits the greylist.
      • A fiscally responsible budget could lower yields and attract inflows.
    • FRAs Reflect a More Dovish Outlook:
      • 3X6 FRA: 14bp cut priced in.
      • 6X9 FRA: 20bp cut, showing moderate easing expectations.
      • 9X12 FRA: 22bp cut, suggesting rates could remain stable for now.

Outlook:

  • ZAR Could Strengthen Further If:
    • Fiscal Reforms Progress: Budget shifts toward cutting wasteful expenditure instead of raising taxes.
    • USD Weakness Continues: Growing US economic uncertainty could drive further dollar declines.
    • Gold Prices Stay Elevated: Ongoing central bank demand and inflation hedging support SA’s trade balance.
  • Key Levels to Watch:
    • Support: 18.3000, break below opens path to 18.0000.
    • Resistance: 18.6350, budget uncertainty caps further gains.

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