Daily Market Report 21 Feb

Daily Market Report 21 Feb

ZAR Ends the Week Strong, Gaining Support from a Weaker USD and Gold Rally

Key Developments

  • South Africa:
    • Budget Postponement Impact: DA confirms it rejected VAT hike two weeks ago; SACCI warns of political instability risks.
    • World Bank Recommends Short-Term Structural Reforms for SA’s economic recovery.
    • Logistics Crisis Costs SA R1bn Daily, adding to broader economic constraints.
  • Global:
    • USD Weakness Continues: Trump’s tariff threats weigh on USD sentiment.
    • Gold Surges to a New Record, up 50% in 14 months, driven by China, India, and central bank buying.
    • US-Ukraine Talks: Trump pressures Ukraine to hold elections as part of peace talks.
    • EU Political Risk: Upcoming German elections could bring major shifts in Europe’s economic policy.

Market Insight – FX

  • ZAR Performance:
    • Spot: 18.3400 | Range: 18.2650 – 18.6350
    • USD Weakness & Gold Rally Fuel ZAR Strength
      • The USD Index at 106.50, testing critical support—could fall to 104.00 (61.8% retrace).
      • Gold price surge improves SA’s terms of trade, boosting ZAR resilience.
      • Foreign capital flows into SA equities add further support.
  • Global FX Trends:
    • USD Index: At 106.50, weakest since early December, with further downside likely.
    • EUR/USD: Holding near 1.0450, watching Germany’s elections for political risk.
    • GBP/USD: Fresh 2025 high at 1.2674, supported by strong UK wage growth.
    • USD/JPY: Broke below 150.00, BoJ tightening bias driving yen strength.

Market Insight – Fixed Income

  • US Treasuries & Global Bonds:
    • UST Yields: 10-year yield at 4.48%, down on speculation of Fed pausing QT.
    • Trump’s Policies Weigh on Bond Market Sentiment, with concerns over economic growth.
  • SA Bonds & FRAs:
    • Postponed Budget Leaves Bond Market in Holding Pattern
      • Investors Await Revised Budget, hoping for expenditure cuts over tax hikes.
      • SA bond auctions to gauge investor sentiment next week.
    • FRAs Stabilizing After Budget Shock:
      • 3X6 FRA: 12bp cut priced in (limited easing expected).
      • 6X9 FRA: 14bp cut (Q3 rate cut still possible).
      • 9X12 FRA: 16bp cut, reflecting a stable rate outlook.

Outlook:

  • ZAR Could Strengthen Further If:
    • Revised Budget Focuses on Debt Consolidation, expenditure cuts.
    • USD Weakness Persists, driven by tariff uncertainty & weaker US data.
    • Gold Prices Remain Strong, supporting SA’s export earnings.
  • Key Levels to Watch:
    • Support: 18.3000, break below opens path to 18.0000.
    • Resistance: 18.6350, capped by market uncertainty over fiscal policy.

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