Daily Market Report 3 June

Daily Market Report – 3 June 2025

South Africa: Resilient on the Surface, but Structural Cracks Persist

Vehicle Sales: Short-Term Spark, Long-Term Questions

May’s 22.0% y/y jump in vehicle sales, while impressive, is distorted by base effects and unlikely to sustain:

  • Passenger vehicles led the rebound (+30.0% y/y), while all categories contributed positively.
  • However, vehicle exports contracted sharply (-14.6% y/y), highlighting weak global demand or logistic bottlenecks.
  • Stimulus from two-pot withdrawals may fade, while SARB’s anticipated rate cuts could extend momentum—though structural tailwinds like affordability and low inflation remain conditional.

Manufacturing PMI: Grim but Not Hopeless

  • May’s PMI at 43.1 confirms contraction for the 7th straight month, underscoring SA’s de-industrialisation.
  • Key subindices like employment (40.0) and supplier deliveries (49.0) reflect deep systemic issues—logistical and structural.
  • Even marginal gains in business activity (43.4) and new orders (38.3) were overwhelmed by persistent weaknesses, especially for exporters.

Municipal Mismanagement and Governance Drag

BLSA CEO Busi Mavuso’s critique of municipal dysfunction reveals the governance problem: out of 257 municipalities:

  • Only 99 received unqualified audits, while 90 were qualified, 6 adverse, and 11 disclaimers.
  • These audit results highlight poor financial discipline, severely constraining service delivery, investor confidence, and local economic potential.

GDP and FX Market: Cautious but Not Crashing

GDP Print: Flatlining in Q1

As expected, Q1 GDP came in flat (0.0%), reinforcing a narrative of stagnation. The SARB’s 25bp cut has offered some breathing space, but:

  • Domestic demand remains weak, despite positive trade terms.
  • SA’s trade surplus is being driven more by weak imports than by a buoyant export sector—reflecting internal economic slack.

ZAR Stability: A Balancing Act

  • Spot around 17.8800, with support at 17.7500.
  • USD-ZAR recovery may test 18.2675 (23.6% Fibo retrace), especially if GDP disappointment weighs on sentiment.
  • Short-term pressure from US tariff moves and global equity volatility may pull in both directions, but structurally:
    • ZAR remains supported by the prospect of more SARB easing, solid terms of trade, and potential FATF greylist exit.

Global Context and Bond Market Implications

USD: Fragile Amid Trade War Redux

  • USD dipped to a six-week low, buoyed slightly by month-end demand but undercut by:
    • Tariff hikes (steel, aluminium), trade frictions with China.
    • Fiscal excess (proposed Trump tax cut and spending bill), pushing debt concerns to the forefront.

USTs and SA Bonds: Mixed Signals

  • USTs saw 30-year yields brushing 5%, steepening the curve (5s30s near 100bp) amid trade worries and fiscal risk.
  • SA bonds, meanwhile, remain attractive:
    • Lower SARB inflation target implies structurally lower long-term rates.
    • But gains may plateau if ZAR weakens short term or if US yields remain sticky.

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