Daily Market Report 26 May

Daily Market Report – 26 May 2025

SARB Rate Decision: A 50/50 Call with Broad Implications

Split Expectations

  • Internal ETM poll: 5 for a cut, 5 against
  • Arguments for a cut:
    • CPI at 2.8%, third month below 3%
    • Fiscal consolidation efforts in Budget 3.0
    • Strong ZAR reducing import cost pass-through
  • Arguments against a cut:
    • New 3% inflation target still unofficial
    • US rates and Treasury yields remain elevated
    • SARB may prefer to signal discipline before easing

ZAR Outlook: Momentum Strong, But Caution Warranted

Metric Value
Spot                            17.8000
Range                            17.6700 – 17.9865
Trend              Downside bias (ZAR strength) continues

FX Factors at Play:

  1. USD Fragility:
    • Trump’s tariff threats on the EU postponed to July 9th = short-term relief
    • US bond yields high, but long-end weakness signals skepticism about growth
    • DXY below 99: Multi-month lows indicate risk aversion toward US assets
  2. Speculative USD Positioning:
    • CFTC data shows persistent short positioning
    • Safe-haven appeal fading under Trump’s trade war volatility
  3. ZAR Specifics:
    • Top-ranked carry attractiveness
    • Fiscal positioning improving
    • Speculation of BEE policy reform and Starlink expansion also aiding sentiment

Bond Market Dynamics: Eye on Long End

  • US 10Y and 30Y yields remain elevated due to deficit concerns, tax cuts, and rate uncertainty
  • SA bonds range-bound, resisting the impulse to follow US yields upward
  • ILB auctions have disappointed recently, reflecting subdued inflation expectations

FRA Curve Update

FRA Tenor Implied Cut
2×5 –23bp
3×6 33bp
6×9 –45bp
9×12 47bp
12×15 48bp
  • Only one cut clearly priced
  • If SARB holds rates this week but signals a shift in inflation targeting, expect modest flattening of the curve

Global Risks: Term Premiums and Structural Debt Concerns

        • Moody’s downgrade, US 30Y yields at 5.09%
        • Japan’s worst bond auction since 2012
        • UK 30Y gilts at 1990s highs

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.