26 Nov

Daily Market Report 26 Nov

ZAR Performs Better Than Most on Trump’s Tariff News

 

Talking Points

  • SA: Ukraine urges SA to use G20 presidency to influence Putin.
  • SA: OECD highlights inefficiencies in SA’s public procurement, proposing reforms.
  • SA: Ambassador to the US reinforces SA’s commitment to strengthening trade relations.
  • Global: Trump announces tariffs—25% on Mexico and Canada, 10% on China.

Global Context: Trump’s Tariffs Shake Markets

Key Developments

  1. Trump’s Tariff Announcement:

    • Trump’s proposed 25% tariff on all goods from Mexico and Canada and a 10% tariff on China aims to reshape global trade.
    • Targeted tariffs on China are expected to focus on products where US manufacturers compete directly, exacerbating tensions in an already fragile trade environment.
    • Analysts remain skeptical about the effectiveness of such measures, given historical data and the lag in realizing their economic impacts.

  2. Market Reaction:

    • Currency markets were volatile, with commodity-linked currencies like the AUD and NZD hit hard due to their correlation with China.
    • US equity markets and Treasuries rallied, reflecting investor optimism about Trump’s Treasury pick, Scott Bessent, who is perceived as a moderating force.

  3. Implications for SA:

    • China’s role as SA’s largest trading partner puts the country at risk of indirect consequences.
    • However, the ZAR showed resilience, reflecting improved sentiment around SA’s reforms, green shoots in leading indicators, and positive bond market inflows.

Market Insight – FX

ZAR Outlook

  • Performance:

    • The ZAR held steady at 18.0750, outperforming peers like the AUD and NZD, which experienced steeper losses.
    • This resilience is attributed to positive sentiment around SA’s fiscal outlook, credit upgrades, and foreign inflows into bonds.

  • Technical Levels:

    • Support: Key support lies at 17.9600 (38.2% Fibonacci retracement), with the next level at 17.8250 (50% retracement).
    • Resistance: Immediate resistance is at 18.1250, with stronger resistance at 18.1700 if risk sentiment weakens.

  • Outlook:

    • If US Treasury yields continue to decline, the ZAR could extend its recovery.
    • SARB’s conservative stance and improving local economic sentiment will provide additional support.

Market Insight – Fixed Income

SA Bond Market

  • Performance:

    • SA bonds gained traction, with the R209 yield falling to its lowest levels since October.
    • Positive sentiment from SARB’s recent rate cut and expectations of further reforms have bolstered demand.

  • Key Developments:

    • The SA 10-year yield spread over US Treasuries widened to 468bp, reflecting optimism about the SARB’s prudent approach.
    • Upcoming bond auctions (R2033, R2038, R2040) will test market sentiment and determine if demand remains strong.

Global Bond Markets

  • US Treasuries:
    • Treasuries rallied on news of Bessent’s nomination as Treasury Secretary, as he is seen as a stabilizing force within Trump’s administration.
    • Yields on 10-year notes eased to 4.4%, reflecting cautious optimism.

Strategic Insights

Near-Term Focus

  1. Trump’s Policies:

    • Tariff announcements are expected to dominate global trade discussions, impacting EM currencies like the ZAR indirectly.
    • Investors will monitor how Scott Bessent moderates Trump’s aggressive fiscal and trade policies.

  2. SA Reforms:

    • Positive momentum in fiscal consolidation, procurement reforms, and private sector inclusion will remain key to sustaining ZAR resilience.
    • Parliament’s grilling of SA’s economic cluster this week will provide insights into the government’s reform agenda.

  3. Economic Data:

    • Black Friday and month-end trade data will offer clues about SA’s consumer spending trends and export performance.

Long-Term Outlook

  • SA’s Fiscal Position:

    • Successful reform implementation, FATF greylist removal, and improved governance will underpin ZAR strength and lower bond yields.

  • Global Risks:

    • Rising geopolitical tensions and the potential for inflationary impacts from Trump’s policies may delay Fed rate cuts, supporting the USD and challenging EM currencies.

 

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