Daily Market Report – 31 March 2025

 

Countdown to Budget Showdown

Top Developments

Budget D-Day Approaches

• Wednesday marks the vote on SA’s long-delayed 2025 National Budget.
• DA threatens to withdraw support if the ANC bypasses GNU consensus.
• ANC trying to form alternative alliances to push the budget through, potentially involving Action SA or other fringe parties.

Key Risk: If the DA pulls support, GNU integrity collapses, or the ANC must pivot to less market-friendly coalitions – both scenarios increase policy and fiscal uncertainty.

Policy Uncertainty at Record Highs

• Reflects gridlock on VAT hike, spending cuts, and economic governance.
• Adds risk premium to ZAR and SAGBs.
• US may sanction ANC officials implicated in Zondo Commission – another geopolitical thorn.

FX Insight – USD-ZAR Surge

• Spot: 18.4100
• Range: 18.2875 – 18.5900
• Resistance: 18.4540 / 18.5910
• Support: 18.2800

ZAR weakened sharply Friday despite global USD softness – a clear signal that domestic politics now outweigh global drivers.

Watchlist: Any GNU or budget announcement today or tomorrow could swing the rand sharply in either direction.

Note: The DA may accept a “compromise VAT hike” to preserve its GNU status and influence. A backtrack here could rally the ZAR swiftly back below 18.2000.

Fixed Income – The Paradox of Impasse

What If the Budget Fails?

• Govt can spend up to 45% of 2024’s budget over the next 4 months.
• No new projects or spending increases allowed.
• Debt servicing not affected – no default risk.

Paradoxical Effect: Fiscal spending freeze + rising revenue = shrinking budget deficit. Ironically, this could support SAGBs in the short term.

Bond Market Positioning

• Despite the ZAR weakness, bond yields may drift lower if the market starts pricing a de facto fiscal consolidation.
• Real returns on SAGBs still attractive (>8%), and SARB’s conservative tone + muted inflation further support long-end buying.

FRAs & Monetary Policy Outlook

SARB still seen cutting once this year, most likely in Q3. FRA curve stable unless ZAR volatility or budget fallout escalates.

Global Overview

• USD “exceptionalism” fading: US faces stagflation risk via Trump tariffs.
• Goldman Sachs GDP revision to 0.6%; Atlanta Fed at -2.8% – ouch.
• UST yields fell sharply Friday on weaker PCE and sentiment data.
• Euro stable, but German borrowing costs are climbing amid fiscal re-expansion.

Final Word

This week is make-or-break. A failed budget means a mini fiscal cliff – ironic short-term gain for bonds, but long-term risk to institutional credibility. A GNU-preserving compromise, even if messy, would reduce uncertainty and likely spark a ZAR rally.

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