Daily Market Report 30 Apr

Daily Market Report – 30 Apr 2025

South African Domestic Developments

1. China-South Africa Agricultural Trade Expansion

China’s expressed interest in increasing imports of South African agricultural products marks a significant trade opportunity. This could benefit SA’s trade balance, bolster rural economies, and support ZAR stability via stronger terms of trade—especially vital if gold/mining outputs are constrained.

2. Immigration Policy Shift under the GNU

A second attempt at reconfiguring immigration policy suggests a more reform-minded or possibly security-focused shift. The GNU dynamic, while introducing political complexity, might create room for broader consensus and administrative upgrades.

3. Eskom’s Municipal Takeover Proposal

Eskom’s proposal to assume control over the electrical services of indebted municipalities could signal a centralisation strategy aimed at improving service delivery and revenue collection. However, it also raises questions about Eskom’s own operational bandwidth and whether this is a rescue or a risk-enhancing move.

Treasury and Budgetary Dynamics

Edgar Sishi’s Sabbatical & Budgetary Power Struggles

Sishi’s sabbatical is stoking speculation about friction between Treasury technocrats and politically driven budgeting processes. This reflects a broader philosophical divide: should budgeting be a political or technocratic process?

  • Pros of Technocratic Dominance: Fiscal discipline, debt containment, investor confidence.
  • Cons: Potential political disconnect, underprioritization of social spending.

The current narrative implies that SA needs more technocratic input—not less—especially as the IMF flags fiscal sustainability risks. Political co-governance in a GNU may exacerbate budgeting volatility unless a clear, rational allocation mechanism is enforced.

Market Insight – FX

USD/ZAR Outlook

  • Range: 18.4000 to 18.7250
  • Technical Note: Fibo retrace at 18.4000 offers a support level. A break below opens the door to 18.0000.
  • Macro Support: Persistent central bank gold buying and demand from China and India should support the ZAR marginally.

However, SA’s inability to capitalize on high gold prices due to structural issues, such as logistics and mining policy, limits the full benefits. Investors are cautious during SA’s short trading week, and global uncertainty around U.S. tariffs keeps USD flow dynamics volatile.

Global FX Movements

  • Dollar: Stable ahead of key U.S. economic data.
  • Euro: CPI data, especially German inflation, could reset expectations for an ECB rate cut.
  • Pound: Strongest monthly USD gain since Nov 2023. GBP/USD trend remains bullish.
  • Yen: Stable, awaiting BoJ decision and U.S.-Japan trade discussions.

Market Insight – Fixed Income

SA Yield Curve

  • Trend: Bear-steepening bias (short-end down on inflation, long-end high on fiscal concerns).
  • Trigger: Yield curve may flatten if the GNU yields a credible, austere budget.
  • Virtuous Cycle Potential: Strong ZAR → lower inflation → better bond performance.

Forward Rate Agreements (FRAs)

  • Implied rate cuts are steep: 9X12 FRA = -66bp; 12X15 = -68bp.
  • These reflect disinflation bets and a belief that SARB will have to respond to tighter credit and fiscal constraints.

Geopolitical – China and U.S. Treasuries

China’s ability to weaponize its U.S. Treasury holdings is overstated:

  • Holdings have declined from $1.3 trillion to $784 billion.
  • Strategic unwinding would hurt China more than the U.S.
  • Dollar-asset allocation in China’s reserves has dropped from 79% to 55%.
  • Long-term trend = diversification, not financial warfare.

Conclusion

SA’s macroeconomic picture hinges critically on how the GNU navigates fiscal reforms. Markets are cautiously hopeful but remain data-dependent. Meanwhile, global FX dynamics are being shaped by trade war ripples, central bank expectations, and earnings season jitters.

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