Daily Market Report 3 Mar
ZAR Faces Volatility as US Economic Concerns Mount & SA Budget Talks Intensify
Key Developments
- South Africa:
- AfCFTA Head Warns of Trade Shift: US may replace AGOA with bilateral trade deals as geopolitical shifts continue.
- SA Budget Talks Heat Up: Cabinet debates ways to balance the budget as the March 12 deadline approaches.
- New Vehicle Inflation Hits 3-Year Low: Lower auto price inflation signals consumer spending relief.
- Global:
- UK-France Push for Ukraine Truce: Diplomatic talks underway to secure a 1-month ceasefire.
- US Economic Data Sparks Concerns:
- Private sector credit growth accelerates, but SA’s budget deficit widens.
- Trade deficit balloons to R16.4bn, much larger than previous months.
- US Tariffs & Retaliation Fears Grow: Trump administration pressures trade partners, sending markets into risk-off mode.
Market Insight – FX
- ZAR Performance:
- Spot: 18.6100 | Range: 18.4175 – 18.7250
- Key Drivers:
- Trade Deficit Shock: SA’s R16.4bn deficit in January spooked investors, fueling ZAR weakness.
- Budget Negotiations Loom: The March 12 budget release will be critical—fiscal consolidation vs. tax hikes.
- USD Strength Persists: Despite US growth concerns, safe-haven demand for the USD remains strong.
- Risks:
- US Tariff Retaliation Could Drive More Market Panic: If China or the EU retaliate, it will create another wave of ZAR volatility.
- Stock Market Volatility: Further losses in global equities could fuel capital flight from EMs.
- Global FX Trends:
- USD Index: 107.00, remains firm despite recession worries.
- EUR/USD: 1.0380, still under pressure amid EU trade concerns.
- GBP/USD: 1.2580, struggles to regain momentum.
- USD/JPY: 149.80, with support at 149.00 as risk-off dominates.
Market Insight – Fixed Income
- US Treasuries & Global Bonds:
- UST Yields Stabilize After Drop: The 10-year yield sits at 4.28%, following a 50bp decline from January peaks.
- Markets Fully Price in Two Fed Rate Cuts: Swap contracts reflect at least 50bp of easing by year-end.
- SA Bonds & FRAs:
- Foreign Investor Sentiment:
- Budget Talks Crucial: If fiscal consolidation is prioritized, SA bonds could rally.
- SA-US Yield Spread Hits 653bp: The highest since November 2024, making SA bonds attractive to foreign investors.
- FRAs Reflect Growing Uncertainty:
- 3X6 FRA: 14bp cut priced in.
- 6X9 FRA: 18bp cut expected for Q3.
- 9X12 FRA: 23bp cut, signaling uncertain rate path.
- Foreign Investor Sentiment:
Outlook:
- ZAR Faces Pressure If:
- US Markets Continue to Tumble: Further equity losses will drive risk-off sentiment.
- SA Budget Fails to Impress: If spending isn’t cut, ZAR could weaken further.
- ZAR Could Recover If:
- US Data Disappoints: Weaker GDP or PCE inflation could revive rate cut bets, pressuring the USD.
- SA Budget Shows Fiscal Discipline: A responsible budget could boost foreign investor confidence.
- Key Levels to Watch:
- Support: 18.3000, with a break below targeting 18.0000.
- Resistance: 18.7250, if risk-off flows persist.
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