27 Nov

Daily Market Report 27 Nov

Talking Points

  • SA: SARB leading indicator rises to 113.9, marking its best level since 2022.
  • SA: Auditor General reports a 50% increase in clean audits for government and provincial entities.
  • SA: Two-pot withdrawals total R35bn, adding liquidity to the economy.
  • CH: China’s industrial profits decline by 10% in October, fueling deflation fears.

Domestic Developments: Rising Optimism Amid Persistent Challenges

Key Highlights

  1. Improved Leading Indicator:

    • The SARB’s composite leading indicator rose to 113.9 in September (+2.0% y/y), marking six consecutive months of growth.
    • Contributors included rising M1 money supply and building plan approvals, reflecting improved credit demand and easing monetary policy.

  2. Clean Audits Increase:

    • A 50% jump in clean audits signals progress, though high-impact departments (77% of the budget) still lag behind.
    • Positive steps include the GNU’s governance improvements and professionalisation of public sector employment.

  3. Two-Pot System Impact:

    • Withdrawals of R35bn provide liquidity, supporting household spending and potentially boosting short-term GDP.

Market Insight – FX

ZAR Outlook

  • Performance:

    • Despite USD strength driven by Trump’s tariff plans, the ZAR held steady, outperforming other commodity-linked currencies like the AUD and NZD.
    • Improved sentiment around SA reforms, bond inflows, and a resilient ZAR Sentiment Index underpinned its stability.

  • Technical Levels:

    • Support: Immediate support lies at 18.0900, with further downside constrained by the 17.9600 (38.2% Fibonacci retracement) level.
    • Resistance: On the topside, 18.1700 and 18.3950 mark key levels to watch.

  • Outlook:

    • ZAR resilience hinges on sustained reform momentum, positive trade balances, and carry attractiveness.
    • External risks from US policy shifts, global trade tensions, and China’s economic slowdown remain key headwinds.

Global Context: Trump’s Tariffs and Market Dynamics

Key Developments

  1. Trump’s Tariff Plans:

    • Announced 25% tariffs on Mexico and Canada and 10% tariffs on China, sparking volatility.
    • Risk aversion spiked, weighing on the MXN (-1%) and CAD (-0.9%), while boosting the USD.

  2. Dollar Dynamics:

    • The USD Index surged above 107.00, supported by tariff news and safe-haven flows.
    • However, broader currency recoveries limited further gains, with the EUR/USD steady near 1.0480-1.0495.

  3. Global Reactions:

    • China: Industrial profits fell 10%, compounding economic pressures from US tariffs.
    • Eurozone: ECB signals further rate cuts to counter growth risks, citing US tariffs as a potential trigger for financial instability.

Market Insight – Fixed Income

SA Bond Market

  • Performance:

    • SA bonds remained strong, with R209 yields dipping to early October lows.
    • R15.465bn in vanilla bond bids at auction underscored solid demand amid easing global inflation and rate cut expectations.

  • Key Factors:

    • Positive fiscal developments, including clean audits and reform progress, are supporting sentiment.
    • Global disinflationary trends and potential for deeper international rate cuts add to bond appeal.

Global Bond Markets

  • US Treasuries:
    • Yields retreated as Scott Bessent’s nomination as Treasury Secretary offered reassurance of fiscal moderation.
    • However, long-term risks from Trump’s tax cuts and trade policies remain.

Strategic Insights

Near-Term Focus

  1. Trump’s Tariff Policies:

    • While the immediate impact of tariffs supports USD strength, long-term effects could weaken global growth and inflation, benefitting SA bonds and disinflationary pressures.

  2. Reforms in SA:

    • Sustained progress on clean audits, procurement reforms, and infrastructure investment will boost investor confidence.
    • Key challenges include addressing structural inefficiencies and municipal liabilities.

  3. Upcoming Data:

    • Month-end trade data and Black Friday consumer spending figures will shed light on SA’s economic recovery trajectory.

Long-Term Outlook

  • SA Reforms and Governance:

    • Continued focus on fiscal discipline, FATF greylist removal, and governance improvements will underpin ZAR resilience and attract foreign capital.

  • Global Risks:

    • Heightened geopolitical tensions, China’s slowdown, and Trump’s policies could challenge EM currencies, including the ZAR.

 

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