DA Walks a Tightrope in GNU Fallout, Markets Hold Steady

The Democratic Alliance (DA) has chosen not to withdraw from South Africa’s Government of National Unity (GNU) following President Cyril Ramaphosa’s controversial dismissal of DA deputy minister Whitfield. While the DA’s response stopped short of pulling the plug on the GNU, it announced its withdrawal from the National Dialogue and pledged not to support budget votes for ministers implicated in wrongdoing.

This move, though symbolically potent, is unlikely to shift the political landscape significantly. Markets breathed a sigh of relief, reassured by the GNU’s continued survival. The USD-ZAR remained stable around 17.76, with scope for a potential relief rally toward 17.65. However, the fragility of the GNU and suspicions over the timing of Whitfield’s dismissal have not gone unnoticed, with speculation rife about deeper motives.

Forex Market Eyes Political Stability, But Momentum Slows

Following the DA’s tempered stance, investor fears of political instability-driven ZAR depreciation eased. The USD-ZAR remains in a narrow range, potentially retesting prior lows near 17.6500. Analysts warn that any inability to breach that level could mark the start of a double bottom formation, suggesting consolidation rather than a breakout. Meanwhile, global dollar weakness persists amid continued fiscal concerns in the US and expectations of Fed rate cuts, supporting the rand’s broader resilience.

SA Bonds Regain Composure After Brief Sell-Off

Last week’s bond market wobble, triggered by political risk fears, was short-lived. South African government bonds settled quickly, helped by perceptions of contained risk and declining US Treasury yields. The National Treasury’s latest inflation-linked bond (ILB) auction drew tepid interest, particularly due to weak local inflation expectations. The long-dated I2038 and I2050 maturities attracted the bulk of demand, though issuance was well below the total bids received.

Market players appear to be repricing expectations around SARB’s 3% inflation target. The underperformance of ILBs could benefit vanilla bonds, which may outperform equities under the current inflation and rate outlook.

Commodities and Energy: Oil Falls, Softs Surge on Tariff Timing

Oil prices slumped, marking their steepest weekly drop in over two years. Brent dipped to just over $67/barrel as OPEC+ considers a fourth monthly production increase to maintain market share. Simultaneously, hedge funds increased short positions amid easing Middle East tensions and weakening Chinese demand.

Meanwhile, Argentine exporters rushed to register record soybean and corn shipments ahead of the July 1 expiration of temporary tariff relief. The surge is helping to boost Argentina’s foreign currency reserves amid broader macroeconomic instability.

Metals: Gold Retreats, Copper Trades Sideways Amid Trade Tensions

Gold prices edged down slightly after two weeks of losses, weighed by rising optimism over global trade negotiations and robust US data. However, gold remains up 25% year-to-date, highlighting its role as a geopolitical hedge.

Copper prices were rangebound as markets await clarity on US trade talks. Fears of looming tariffs triggered a surge in US-bound shipments, driving down LME inventories. Other base metals, including aluminium and zinc, broadly weakened, while SHFE nickel bucked the trend.

Macro Focus: Germany Disinflates, US Braces for Tariff Drama

Germany’s inflation remains subdued at 2.1% y/y, supporting the broader Eurozone disinflation narrative. Yet, structural risks from expansive fiscal policy persist. In the US, President Trump’s tariff brinkmanship has stirred fresh uncertainty. With less than two weeks before tariffs are reinstated, most trade deals are expected to be narrow and incomplete, sparking concerns over global growth and legal challenges to Washington’s unilateral tariff actions.

Looking Ahead: Key Data and Events

• South Africa: Private sector credit, trade balance, and budget data are due.

• China: PMI data shows continued manufacturing contraction.

• US: Labour market indicators and ISM data will shape Fed expectations.

• Eurozone: CPI readings to guide ECB policy.

A critical eye remains on President Trump’s July 9 tariff deadline. Until then, markets are expected to remain cautious but orderly.