Daily Market Report – 27 March 2025

Tariff Shock Hits USD, ZAR Finds Ground

Key Themes

SA Budget in Limbo – GNU Fractures Deepen

• Moody’s fires a warning shot: If the budget fails to pass in Parliament, longer-term fiscal credibility could be at risk.
• Coalition at odds: DA and MK/EFF remain unlikely to back a VAT hike, seen as regressive. The ANC is caught between:
  • Staying in the GNU and compromising,
  • Or splitting and aligning with new (riskier) partners, which would be deeply unpopular.
• Shutdown scenario? If the Appropriation Bill fails, SA faces its version of a government shutdown—a breach of constitutional spending limits. This elevates fiscal uncertainty.

Takeaway: Unless ANC embraces coalition governance fully, fiscal consolidation will remain out of reach, and bond yields will price that risk.

Data Flash – PPI and Job Cuts

• PPI: Slowed slightly but remains low — February likely to print around 1.2-1.3% y/y, up marginally from January’s 1.1%.
• Mining sector malaise: 13,000 jobs lost – underscores the policy vacuum hurting SA’s most capital-intensive industry.
• These two reinforce the case that SA’s inflation is structurally constrained, but economic growth is weak.

FX Market Insight – USD-ZAR

• Spot: 18.2100
• Range: 18.0350 – 18.4540
• Bias: Mildly ZAR-bullish as long as US trade policy chaos continues.

Trump’s 25% tariffs on auto imports have stunned markets:

• USD has taken a broad hit as traders digest potential:
  • Slower US GDP (auto sector is supply-chain intensive),
  • Trade retaliation from partners like the EU, Japan, Mexico,
  • Inflation spike → Fed delay on cuts → Policy paralysis.

ZAR take: As long as US policy turmoil keeps the USD weak, and ZAR’s fiscal story doesn’t worsen, we could see a retest of the 18.0350 support.

Bonds & Fixed Income

Bonds:

• Despite a stronger ZAR, yields remain sticky due to:
  • Rising doubts about the budget’s passage,
  • No fiscal adjustment means no debt consolidation.

Today’s PPI could offer some relief if subdued again, but long-end risk premium remains embedded.

FRA Curve:

Expectations are consolidating. The SARB remains cautious — they want inflation in the lower half of the 3%-6% band, and a stable ZAR helps.

Global Context

• USD Index bearish trend continues, but any sharp stock market selloff could cause a risk-off rally that temporarily supports the dollar.
• Gold remains elevated, still ZAR-positive.
• UK gilt market rallied on trimmed long-end issuance – an interesting parallel for how SA’s issuance strategy may affect yields going forward.

Final Word

This week’s ZAR resilience comes courtesy of US economic self-sabotage, not SA excellence. The budget vote window closes by mid-May, and if the ANC doesn’t pivot, SA risks a major credibility hit. ZAR gains will be capped by that risk, while bonds remain nervous but not panicked.

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