Daily Market Report 26 Mar

Daily Market Report – 26 March 2025

South Africa: Mixed Domestic Signals

1. SARB Leading Indicator Improves

  • Summary: The South African Reserve Bank’s (SARB) Composite Leading Business Cycle Indicator rose by 0.9% m/m in January, reaching 114.4 points. This nearly matches the post-COVID peak in November (114.7).
  • Drivers: Growth was primarily driven by:
    • Acceleration in new passenger vehicle sales (smoothed over 6 months),
    • An increase in residential building plan approvals.
  • Drags: Lower average working hours per factory worker, slowing job advertisements.
  • Yearly Growth: +3.4% y/y — 10th straight y/y increase, indicating some resilience.

Economic Implication: While a sign of modest economic recovery, structural headwinds in manufacturing and employment linger. Consumer spending may have been temporarily buoyed by the R40bn early retirement payouts (from the two-pot retirement reform), but without wage growth or investment recovery, the upswing may not be sustained.

2. Consumer Confidence Collapse

  • Summary: The BER Consumer Confidence Index plummeted to -20 in Q1 2025 (from -6 in Q4 2024), hitting a two-year low.
  • Sub-indices:
    • Expected Economic Performance: -32 (from -9),
    • Expected Household Finances: -1 (from 11),
    • Time to Buy Durables: -28 (from -21).
  • Demographic breakdown:
    • High-income: -30 (down 26 pts),
    • Middle-income: -19 (down 12 pts),
    • Low-income: -17 (down 10 pts).
  • Causes: Fear of tax hikes (notably VAT), erosion of real income due to bracket creep, and fiscal uncertainty.

Economic Implication: This sharp drop in confidence — especially among high-income earners — suggests reduced discretionary consumption and increased savings, which could dampen domestic demand. Fiscal tightening (actual and perceived) has a pronounced psychological and behavioral impact.

Global Geopolitical and Market Dynamics

3. Russia-Ukraine Truce

  • Summary: A provisional sea and energy truce has been agreed upon between Russia and Ukraine, though disagreements remain over sanction terms.
  • US View: Trump administration cautiously optimistic, citing “progress in talks.”

Economic Implication: A step toward de-escalation could reduce geopolitical risk premiums, especially in commodities and energy markets. However, credibility remains weak, and any reprieve is likely to be short-term unless broader resolution is achieved.

4. FX Market Analysis

ZAR Outlook

  • Status: ZAR currently at 18.2850, caught in a narrow range (18.0350–18.4540).
  • Supportive Factors: Slightly softer Trump stance on tariffs, lower VIX (risk appetite), SARB conservatism.
  • Risks: US data volatility, fiscal gridlock domestically, structural imbalances.
  • USD/ZAR Watch Levels:
    • Break above 18.2875 → opens path to 18.40+,
    • Support at 18.0350.

USD & Global FX

  • USD: Holding above 104.00 (DXY) as PCE data looms.
  • EUR: Potentially strengthens if ECB rate cut expectations recede (currently 65% priced in for April).
  • GBP: Recovering from recent lows ahead of Spring Statement (expected cuts & lower growth forecast).
  • JPY: Expected to strengthen as Japan’s fiscal year-end drives flows (USD/JPY may retest 146.55).

FX Implication: ZAR remains vulnerable to global risk sentiment, but idiosyncratic domestic risks — especially fiscal — keep pressure high. Dollar consolidation limits upside for EM currencies short-term.

5. Fixed Income / Bond Market

South African Bonds

  • Yield Curve: Steepening — long-end yields rising more sharply.
  • Drivers:
    • Rising fiscal risk (budget deadlock, GNU uncertainty),
    • Weakening ZAR,
    • Lack of credible fiscal consolidation plan.
  • Investor Message: “Fix the fiscal path — or markets will force you to.”

Economic Implication: The curve steepening reflects declining long-term investor confidence in debt sustainability. The interest burden is rising, and only credible fiscal reform can reverse it. Without this, a market-imposed correction (higher yields, ratings pressure) looms.

FRAs (Forward Rate Agreements)

  • Shifts: Market now pricing only one rate cut for 2025.
    • 3X6 FRA: 18bps,
    • 6X9: 24bps,
    • 9X12 and 12X15: both 26bps.
  • Message: SARB is expected to remain hawkish longer — a reflection of global caution and domestic risk.

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