Daily Market Report 28 Feb

Daily Market Report 28 Feb

Stocks Tumble as Tariff Fears Escalate – ZAR Faces Pressure Amid Risk-Off Sentiment

Key Developments

  • South Africa:
    • PPI Edges Higher: Producer price inflation rose to 1.1% y/y in January from 0.7% y/y in December, slightly above expectations.
    • Focus on Local Data: Investors await money supply, trade, and government finance data, which will provide insight into economic stability.
    • USAID Grants Revoked: The Trump administration has rescinded USAID grants for SA, adding geopolitical strain.
  • Global:
    • Stock Market Selloff Intensifies: Global stocks plummeted overnight, driven by Trump’s aggressive tariff threats and waning US economic data.
    • US Economic Weakness:
      • Jobless claims rose sharply, the highest jump in five months, signaling labour market pressures.
      • Fourth-quarter GDP data was revised lower, reinforcing fears of slowing growth.
    • Trump Confirms Tariffs:
      • 25% tariffs on Canada & Mexico to take effect on March 4.
      • Additional 10% tariffs on Chinese goods announced.
      • Markets fear escalating trade wars and potential retaliation from affected countries.

Market Insight – FX

  • ZAR Performance:
    • Spot: 18.4950 | Range: 18.2650 – 18.6350
    • Key Drivers:
      • Risk-Off Sentiment: Global investors are fleeing riskier assets like EM currencies in favour of safe-haven demand for the USD.
      • Tariff Uncertainty: Fears of retaliatory tariffs and potential disruptions to trade flows are weighing on investor sentiment.
      • Weaker US Growth Prospects: The US economy is showing cracks, yet higher inflation risks are keeping rate cut expectations in check.
    • Risks:
      • US Tariff Retaliation Could Trigger Market Panic: If the EU and China strike back, markets could see another sharp sell-off, sending the ZAR into further retreat.
      • Continued Stock Market Volatility: Further losses in equity markets will drive investors into safe-haven assets, strengthening the USD.
  • Global FX Trends:
    • USD Index: Holding above 107.00, buoyed by stronger haven demand.
    • EUR/USD: 1.0380, as euro sentiment remains weak due to slower economic growth.
    • GBP/USD: 1.2580, as investors cut exposure following Trump’s tariff threats.
    • USD/JPY: 149.80, with support at 149.00 as risk aversion dominates.

Market Insight – Fixed Income

  • US Treasuries & Global Bonds:
    • UST Yields Rebound Slightly: The 10-year yield rose to 4.29%, breaking a six-session decline.
    • Markets Fully Price in Two Fed Rate Cuts: Traders expect two 25bp cuts this year, but inflation risks remain a wildcard.
  • SA Bonds & FRAs:
    • Foreign Investor Sentiment:
      • Focus on the budget: The next budget release on March 12 will be crucial for SA’s fiscal trajectory.
      • US Bond Yields Impact SA Outlook: Lower UST yields could help ease fiscal pressures.
    • FRAs Reflect Growing Uncertainty:
      • 3X6 FRA: 14bp cut priced in.
      • 6X9 FRA: 20bp cut, suggesting moderate easing expectations.
      • 9X12 FRA: 24bp cut, indicating uncertainty over rate policy direction.

Outlook:

    • ZAR Faces Pressure If:
      • US Markets Continue to Tumble: Further equity losses will drive flight-to-safety flows into the USD.
      • Retaliatory Tariffs Are Announced: Any EU or China response to Trump’s tariffs will add volatility to FX markets.
    • ZAR Could Recover If:
      • US Economic Data Disappoints: If GDP or PCE inflation surprises to the downside, rate cut expectations will rise, pressuring the USD.
      • SA Budget Shows Fiscal Discipline: If wasteful spending cuts are prioritized over tax hikes, investor confidence could improve.
    • Key Levels to Watch:
      • Support: 18.3000, with a break below targeting 18.0000.
      • Resistance: 18.6350, if risk-off flows persist.

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.