Daily Market Report – 29 May 2025
SARB Decision: The Tightrope Walk
Split Views
- Market Pricing: 25bp cut priced in
- Analyst Consensus: ~60% probability of a cut
- Key Trade-Off:
- For a cut: CPI < 3%, ZAR stable, subdued global inflation
- Against a cut: Tariff uncertainty, global market volatility, inflation target shift pending
Core Considerations
- ZAR’s Resilience: Strong carry dynamics + risk-adjusted returns
- Inflation Targeting Talks: Likely shift to 3% would require policy tightening or maintenance
- External Risks: Global equity fragility, fiscal stress in the US, oil volatility
FX Market Insight: USD-ZAR Clings to Support
| Metric | Value |
|---|---|
| Spot | 17.9450 |
| Support | 17.7900 |
| Resistance | 18.0650 |
| Trend | Neutral-to-bullish for USD |
Technicals & Fundamentals
- Price Action: Support at 17.7900 has held firmly
- ZAR drivers: Trade surplus, carry appeal, low volatility
- Risk: If SARB surprises with a hold + 3% inflation target guide, expect ZAR to rally towards 17.60s
Upside risks exist if:
- SARB cuts aggressively or
- Global equities retreat sharply
FRA Market & Bond Yields: Poised but Uncommitted
| FRA Tenor | Implied Cut |
|---|---|
| 2×5 | –24bp |
| 3×6 | 33bp |
| 6×9 | 45bp |
| 9×12 | 48bp |
| 12×15 | 50bp |
- Reading: Curve reflects two cuts, but sentiment is mixed
- Interpretation: Traders believe in easing, but not in a structural shift yet
Bonds Holding Up
- R209 spread to US 10Y compressing (~618bp vs. >740bp in April)
- Yield curve flatter, reflecting:
- Improved fiscal signals
- Optimism in third budget iteration
- Belief SARB won’t over-ease
Global Macro Context: USD Boosted by Court Ruling
What Happened?
- US Trade Court blocked Trump tariffs, stating power lies with Congress, not POTUS
- Market Response:
- USD ↑ (DXY > 100)
- Equities ↑ (S&P futures +1.7%)
- Gold ↓, Yields ↑
Longer-Term Caveats:
- Trump’s $3.8tn deficit risk remains unresolved
- Treasury yields rising (30Y at 4.999%) = elevated US fiscal risk
- Appeal likely, so volatility not gone
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