25 Oct

Daily Market Report 25 Oct

1. US Election Uncertainty:

  • Harris vs Trump: The tightening race between Kamala Harris and Donald Trump ahead of the US elections has introduced significant uncertainty into the market. Both candidates bring different policies that could affect the USD. A Trump presidency would likely introduce more disruption, particularly in areas like trade tariffs, tax cuts, and geopolitical tensions, while Harris is seen as a continuation of the status quo. Investors are grappling with these differing outlooks, and the uncertainty has weighed on risk appetite in global markets.

  • Trump’s Economic Policies: Investors generally view Trump’s focus on tax cuts and controlling illegal immigration as potentially positive for the US economy, but his use of tariffs and the unpredictability of his geopolitical stance could introduce volatility. Meanwhile, Harris would likely continue with policies that many view as less disruptive, but which may lead to larger fiscal burdens through extended government spending.

2. USD Performance and Market Consolidation:

  • USD Rally Pausing: The USD has seen an impressive run in recent weeks, supported by US economic resilience, slowing inflation, and expectations of gradual Fed rate cuts. However, much of this may now be priced in, and there are signs that the USD could enter a period of consolidation. The election uncertainty further complicates the outlook, with some analysts predicting that the USD may lose some steam as the market adjusts to the various possible election outcomes.

  • Fed Rate Cut Expectations: Fed funds futures now reflect more conservative expectations for rate cuts, with the market pricing in two 25bp cuts over the next three meetings, down from earlier expectations of a more aggressive easing cycle. This shift has contributed to the USD strength, as investors view the US economy as more robust compared to other major regions like Europe or China.

3. ZAR Outlook:

  • ZAR Performance: The ZAR has succumbed to USD strength in recent sessions, but the USD’s potential consolidation could offer the ZAR some relief. Currently trading around 17.6750, the ZAR remains under pressure, but support at 17.3500 should limit further downside. If the USD enters a consolidation phase, the ZAR could stage a recovery, especially if global risk appetite improves.

  • Local Developments: Domestically, South Africa faces several challenges, including NUMSA’s wage demands, allegations of fraud at SASSA, and concerns within the GNU about SA’s relationship with Russia. These factors contribute to investor uncertainty, but overall, SA bonds have remained attractive due to high yields and the potential for further rate cuts by the SARB.

4. Global Market Context:

  • Eurozone: The Eurozone remains in a difficult position, with economic activity stagnating and business confidence waning. The latest PMI data showed that the economy remains below the 50-point growth threshold, increasing the likelihood of ECB rate cuts. With the EUR/USD pair trading around 1.08225, the outlook for the euro remains weak, as markets expect the ECB to cut rates by at least 25bp, with some speculation about a 50bp cut.

  • Sterling and JPY: The GBP has seen some gains recently, driven by expectations that the BoE may hold rates higher for longer, while the JPY has weakened due to rising US Treasury yields. The yen has breached key levels and is trading around 151.70, with risks still elevated ahead of the Japanese election.

5. Bond Market Dynamics:

  • US Treasuries and Global Yields: US Treasury yields dipped slightly, reflecting some softening economic data and moderating inflation expectations. However, US Treasuries remain attractive relative to other global bonds, which has helped to support the USD. Domestically, SA bonds have seen some foreign inflows as the carry trade remains appealing at these higher yields. With no major domestic data on the horizon, attention will shift to the MTBPS next week for an update on SA’s fiscal outlook.

 

Why Choose TreasuryONE?

Minimise the impact of market volatility on your bottom line by getting access to an experienced team of dealers that provides expert market advice – validated by facts and figures, not feelings or hearsay.

We customise risk management strategies to achieve the most competitive rates in a fast-moving and complex marketplace.

We provide effective and measurable processes for managing:

  • Exchange Rate Risk arises when an organisation conducts business in multiple currencies, either through exports and imports, or through foreign operations.

  • Commodity Price Risk is the financial risk posed to an entity’s financial performance and profitability by fluctuations in commodity prices that are primarily driven by external market forces and are therefore beyond the entity’s control.

  • Interest Rate Risk management for companies involves identifying, measuring, and managing the potential impact of changes in interest rates on a company’s financial position and profitability.