Daily Market Report – 3 Apr 2025

ZAR Wobbles, GNU Fractures, and Trump Slaps 30% Tariff on SA

Triple Blow for South Africa: A Fractured GNU, Flawed Budget, and Trade War Fallout

1. The GNU is teetering.
The DA’s firm opposition to the budget framework – voting against it and threatening legal action – has exposed the fragility of the GNU. The ANC’s reliance on non-GNU allies like Action SA and BOSA to pass the fiscal framework has undermined coalition legitimacy.

2. The budget is suboptimal.
Yes, the VAT increase was pared down, but the fiscal plan still leans heavily on increasing taxes in a weakening economy instead of shrinking the bloated public sector. With global growth headwinds intensifying, the tax revenue forecasts are already suspect.

3. Trump just hit SA with a 30% tariff.
This is a devastating blow to SA’s vehicle exports and raises a broader question: Did National Treasury account for this shock in its revenue estimates? Highly doubtful.

The political optics, economic rationale, and timing of the budget are all poor. The DA may end up on the “right side of history” for rejecting it, but markets are punishing the incoherent and fragmented approach.

Market Reaction – ZAR Craters

• Spot: 18.8550
• Range: 18.7250 – 19.0450
• USD-ZAR spiked nearly 70c in 24 hours, forming a “tweezer top” toward 18.9800 with 19.0450 in sight.

Drivers:

• ZAR weakness is local – budget doubts, GNU fracture, DA court threats
• Gold surging to fresh records providing minimal cushion
• USD weakness globally offers only slight reprieve

The sell-off is politically induced. Until the GNU reasserts stability and a clear economic gameplan emerges, the ZAR will remain fragile, even with gold windfalls.

Fixed Income – Bonds Slammed

• R209 yield >11%, up ~38bp in 48 hours
• Spread over US 10Y: +704bp, highest since Aug 2024

Why?

• Fiscal risk exploded due to budget fragility
• Threat of DA legal action adds institutional uncertainty
• Future borrowing costs will rise permanently unless credibility is restored

The “cost” of passing this budget will be visible in elevated debt service costs and a more volatile funding environment. Ironically, this could force Treasury to cut waste more aggressively, or worse, knock on the IMF’s door.

FRAs – Rate Cut Bets Evaporate

Interpretation: Market now sees limited room for the SARB to ease, due to the inflationary risk from ZAR weakness, rising import costs, and volatile fiscal dynamics.

Global Markets in Turmoil

• Wall Street Futures Down sharply
• Gold surges as safe-haven king
• VIX spiking, risk-off in full effect
• USD Index <103, as JPY and CHF rally

Trump’s “Liberation Day” tariffs are proving globally disruptive, and other countries may now follow Israel’s lead, seeking bilateral tariff waivers or risk full-scale trade wars.

US exceptionalism is in retreat. Treasury markets are pricing in recession risk, with yields collapsing and derivatives betting on 100bp Fed cuts this year.

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