Daily Market Report – 28 March 2025

 

GNU Budget Deal on the Horizon?

Key Developments

GNU Edging Toward Budget Compromise

• DA leader Steenhuisen signals optimism: “Closer than people think” – suggests a deal could come within a week.
• ANC to deliberate over the weekend, signalling urgency to finalize terms.
• If a deal is not reached, Parliament may operate under interim appropriations (45% of last year’s budget) – which ironically could improve fiscal metrics short-term by delaying expenditure.

Strategic Insight: Coalition friction is frustrating, but it’s enforcing fiscal discipline via political gridlock – a rare case where inaction might be deficit-positive.

Economic Reform Signals

• A new Water SOE will centralize non-municipal infrastructure by 2026.
• Encouraging signs that rail liberalization is on track, possibly opening freight corridors to private sector competition.

These are long-term bullish signs for productivity and public investment crowd-in, if implementation follows intent.

Data Review – PPI

• PPI slowed to 1.0% y/y (Feb) vs. 1.1% in Jan – below the 1.3% consensus.
• Implies muted pipeline inflation, reinforcing a dovish tilt from the SARB.
• Market-implied rates still suggest one 25bp cut by year-end.

FX Market Insight – USD-ZAR

• Spot: 18.2800
• Range: 18.0350 – 18.4540
• Bias: Bullish-ZAR if GNU compromise confirmed or gold continues rally.

Gold at $3072/oz: An 8% share of SA exports – this spike helps both terms of trade and ZAR momentum. USD weakened post-Trump tariff shock; global retaliation risk growing. If today’s Parliament coverage confirms progress, ZAR could punch through 18.20, possibly testing 18.0350 support next week.

Traders should watch for headline risk from PCE inflation data in the US, and stock market volatility (esp. auto and EU sectors).

Fixed Income

Bond Market Steady, But Watchful

• If no budget deal: Spending freeze = lower deficit → bond-positive
• If compromise reached: Policy certainty returns → also bond-positive

Either way, bond bulls may find real returns >8% compelling, especially if SARB’s rate-cut bias remains and stock markets wobble.

ILB Auction Today:

• R1bn on offer (I2033, I2043, I2058). Focus on breakevens and inflation expectations.
• Surprise downside CPI/PPI prints suggest vanilla bonds might outperform ILBs short-term.

FRA Watch

Flat and cautious – no sharp repricing expected unless:

1. ZAR breaks out of its range, or
2. GNU impasse fully resolves or collapses.

Global Overview

• USD Index: Stabilized near 104.25 after tariff shock.
• EUR/USD: Bounced from 1.0731, but pressure from auto tariffs and ECB cut pricing remains.
• BoE, ECB, Fed: All caught between fiscal tightening and tariff-driven inflation risks.
• Next key date: April 2 – Trump’s announcement on reciprocal tariffs (markets may de-risk ahead of this).

Final Word

The ZAR is enjoying a “Goldilocks” moment – stable USD, surging gold, and optimism over fiscal consensus. But the key test is next week: budget resolution or gridlock. Either path may support bonds, but ZAR upside depends on actual policy delivery.

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