South Africa’s Strong Tax Collections Bolster Fiscal Outlook Ahead of MTBPS

South Africa’s fiscal performance showed a marked improvement as tax revenues for the first half of FY2025/26 exceeded expectations by R18 billion, reaching R925 billion compared to the projected R907 billion.

According to ETM Analytics, the higher-than-expected 9.3% year-on-year growth was driven by stronger domestic VAT receipts, corporate provisional taxes, and PAYE collections. Additional inflows came from R18 billion in two-pot pension withdrawals, which generated R6 billion in extra taxes, and customs duties on imports such as clothing added R500 million.

SARS’ crackdown on tax compliance and e-commerce loopholes, along with a 0.7% increase in voluntary compliance, helped boost revenue. Analysts said the trend points to an improving fiscal picture ahead of next month’s Medium-Term Budget Policy Statement (MTBPS).

The positive developments, coupled with lower-than-expected government spending due to a budget freeze, could ease debt pressures, lower bond yields, and reinforce investor confidence in local assets.

Fed Decision Looms Large as USD Weakens

The US dollar hovered near a one-week low on Tuesday, pressured by expectations that the Federal Reserve will cut rates by 25 basis points later today — the second consecutive reduction this year.

Investors expect Chair Jerome Powell to deliver dovish guidance, with markets pricing in another cut in December. The USD Index steadied at 98.7, while US Treasury Secretary Scott Bessent’s comments hinting at potential BoJ rate hikes lifted the yen.

In South Africa, the rand (ZAR) remained resilient, supported by the SARB’s conservative stance and robust real yields. The USD-ZAR traded at R17.15, within a range of R17.05–R17.35, after testing support at R17.1750. Analysts said the local unit could strengthen further if Powell’s tone reinforces global risk appetite.

Bond Auction Draws Strong Demand, Highlights Investor Optimism

South Africa’s bond market delivered another impressive performance as bidding interest surged to R20.4bn, the second-highest level since May 2021, in the latest National Treasury auction.

The R2044 bond attracted the most demand, clearing at a weighted average yield of 9.917%, below secondary-market levels, reflecting tight pricing and investor confidence.

ETM said the results underline deep foreign appetite following South Africa’s FATF greylist exit and the SARB’s inflation-targeting credibility. However, analysts warned that valuations may now be stretched, and the upcoming MTBPS will be key in determining whether the fiscal improvement trend continues.

Forward Rate Agreements (FRAs) reflected expectations of two to three 25bp rate cuts in 2026, conditional on sustained rand strength and moderating inflation.

Oil Steadies as Traders Weigh Sanctions and Surplus Risks

Oil prices stabilised after three sessions of declines, with Brent crude trading just below $65/bbl and WTI near $60/bbl.
Markets are weighing new US sanctions on Russian producers Rosneft and Lukoil against expectations of a global supply surplus.

While US data showed nationwide stockpile drawdowns, inventories rose at Cushing, signalling mixed fundamentals. Traders are watching the Trump-Xi summit later this week and the Fed’s rate decision for cues on broader risk sentiment.

Gold Holds Near $3,950 Ahead of Fed Cut, Copper Near Record Highs

Gold prices steadied around $3,950/oz after a sharp correction from last week’s record above $4,380/oz, as traders positioned ahead of the Fed’s expected rate cut.
Despite recent outflows from gold ETFs, the metal remains up 50% year-to-date, supported by central-bank buying and inflation concerns.

Meanwhile, copper hovered near $10,993/ton, its highest level in over three years, supported by a weaker dollar, tight supply, and optimism over a US-China trade breakthrough.

Fed Expected to Cut Rates Amid Internal Divisions

The Federal Reserve is poised to deliver a quarter-point rate cut later today, though divisions among policymakers persist.
Chair Powell is expected to remain noncommittal about further easing, balancing a soft labour market against lingering inflation risks.

The Fed may also announce an end to balance sheet runoff, which has drained $2 trillion in liquidity since 2022. Markets are pricing a 94% chance of another cut in December, according to ETM’s chart of the day (page 9).

China Unveils Plan to Boost Domestic Demand

China’s Communist Party unveiled a plan to shift growth toward domestic consumption over the next five years, reducing dependence on exports amid US trade tensions.
The strategy includes major investments in semiconductors, industrial machinery, and technology, while encouraging household spending and employment. The final plan will be approved in March 2026.