Daily Market Report 25 Mar

Daily Market Report – 25 March 2025

ZAR Navigates a Mixed Data Day with Global Tariff Uncertainty Looming

Talking Points

  • SA: Composite Leading Indicator dips in December but maintains annual growth trend.
  • SA: Consumer confidence falls to -6, ending three-quarter recovery streak.
  • SA: Payroll data shows formal sector jobs decline again; informal work surges.
  • Global: Trump’s softer tariff stance lifts risk assets but uncertainty persists ahead of April 2 deadline.

Market Insight – FX

ZAR: Dollar Drives Trade as Local Optimism Fades on GNU Delivery

  • Key Levels:
    • Spot: 18.2280
    • Range: 17.9700 / 18.2875
    • Support: A break below 18.0350 increases the risk of testing the 78.6% fibo retrace at 17.9700.
    • Resistance: Topside contained at 18.2875.
  • Drivers:
    • With no market-moving local data, ZAR remains under the influence of global sentiment.
    • Trump’s softened tone on tariffs has revived risk appetite, easing ZAR pressure somewhat.
    • Despite the softer CPI and SARB’s dovish lean, ZAR’s path forward will depend heavily on fiscal credibility and reform delivery.
    • Resilient gold prices and elevated local bond spreads offer some fundamental support to the ZAR, though structural headwinds persist.
    • Traders should treat any USD-ZAR rally with caution given underlying risks in the US economy and tightening liquidity from the Fed.

Market Insight – Fixed Income

Bonds: Rising Yields Reflect US Moves, but Domestic Risk Still Contained

  • Performance:
    • Yields climbed in sympathy with a global shift toward risk assets and a surge in US Treasury yields.
    • The R209/US10Y spread remains wide at 657bp, preserving South Africa’s carry attractiveness.
  • Key Themes:
    • Local data, including the weaker formal employment numbers and slipping consumer confidence, reinforce the subdued growth narrative.
    • Investors will be watching for fiscal discipline from Parliament—without it, the bond market’s resilience will be tested.
    • PPI on Thursday will offer a modest check on inflation expectations but is unlikely to alter the broader dovish tone from the SARB.
    • As global equity optimism builds, bonds may face some short-term selling pressure, but the broader disinflation and SARB’s easing path should limit upside in yields.

Forward Rate Agreements (FRAs):

  • Following the SARB’s decision, the curve has adjusted to price in only one more cut this year, showing consolidation:
    • 3X6 FRA: Pricing in 20bps of cuts.
    • 6X9 FRA: Dipped to -26bps for Q3.
    • 9X12 & 12X15 FRAs: Reflect -29 to -30bps, suggesting another 25bp rate cut and the possibility of a second.

Key Domestic Considerations

  1. Leading Indicator (Dec 2024):
    • Fell to 112.8 (from 114.7), but annual growth trend remains positive.
    • Reflects improving business conditions supported by lower rates and energy stability.
  2. Consumer Confidence:
    • Dropped to -6 in Q4, ending a recovery streak, reflecting disappointment in GNU performance and local service delivery failures.
  3. Formal Employment (QES Q4):
    • Third straight quarterly decline (-2.7% y/y), reinforcing SA’s structural job creation issues.
    • Growth increasingly reliant on informal employment, raising red flags for inclusive economic recovery.

Global Context

USD Outlook:

  • Dollar Index remains elevated near 3-week highs as investors await Trump’s official tariff announcement (April 2).
  • Recent reports of more targeted measures have calmed markets, but uncertainty remains high.
  • A weaker US business cycle and Fed’s quantitative tightening still point to longer-term USD softness.

Cross-Currency Themes:

  • EUR/USD: Pivoting around 1.0800; rebounded from lows despite wider yield spreads.
  • GBP/USD: Hovering above support at 1.2900 ahead of UK budget; first resistance at 1.2973.
  • USD/JPY: Bid near 150.00 as yields rise and longs unwind; exporters likely to cap further upside.

Global Bonds:

  • US Treasuries:
    • 10-year yield surged to 4.31% (+6.8bp), mirroring the risk-on mood following tariff clarity.
    • Bear steepening continued, though many strategists see limited scope for long-term upside in yields.
    • Fed’s dovish bias still intact; markets pricing in two cuts with 44% probability of a third.
  • German Bunds: 10Y yield rose to 2.8% (+2.2bp), ending a five-day rally.

Outlook for the Week

  • Thursday’s PPI:
    • Will help shape inflation trajectory.
    • Expected to be benign, reinforcing the SARB’s current easing bias.
  • Parliamentary Budget Debate (ongoing):
    • Core risk driver for the ZAR and bonds.
    • Markets seeking evidence of structural cost reform and commitment to fiscal consolidation.
  • Global:
    • Markets remain fixated on Trump’s next move on tariffs.
    • Stock markets’ risk-on tilt could face reversal if “Liberation Day” surprises to the hawkish side.

Conclusion

Markets are balancing optimism over easing global trade tensions with concerns about structural weaknesses at home. South Africa’s reform trajectory remains promising but lacks traction at the local level. With the SARB having set the stage for easing, attention turns to fiscal policy. Until greater clarity emerges, the ZAR and bonds will remain range-bound but supported by global carry dynamics and elevated gold prices.

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