Daily Market Report 4 Feb

Daily Market Report 4 Feb

Trump Softens Tariff Stance, Markets Stabilize

Key Developments

  • Trump Eases Tariff Threats
    • Tariffs on Canada & Mexico paused after securing concessions.
    • China still faces 10% tariffs, with no backtrack from Trump.
    • Next 30 days will be used to renegotiate trade relations.
  • South Africa’s Response
    • Ramaphosa’s official response is more conciliatory, easing tensions.
    • Elon Musk criticizes SA’s race-based policies, drawing Trump’s attention.
    • Ipsos poll suggests confidence in the GNU, despite policy concerns.
  • Market Reaction
    • ZAR recovers sharply after initially breaching 19.00/dlr.
    • US stocks bounce back, reducing global risk-off sentiment.
    • Gold remains elevated, signaling ongoing uncertainty.

Market Insight – FX

  • ZAR Performance
    • Spot: 18.7175 | Range: 18.4175 – 18.8650
    • ZAR strengthens overnight as tariff fears ease.
    • Further gains possible, but China’s response is key.
    • USD-ZAR topside move capped at 18.8650; support at 18.4175.
  • Global FX Trends
    • USD Index stabilizes above 108.50, with potential for reversal if risk sentiment improves.
    • EUR/USD faces downside risk, as Trump hints at future EU tariffs.
    • GBP/USD stabilizes around 1.2250, but risks remain.
    • USD/JPY remains range-bound, with BOJ’s hawkish stance supporting the yen.

Market Insight – Fixed Income

  • US Treasuries
    • Short-term yields rise on inflation concerns.
    • Long-term yields fall as investors seek safety.
    • Fed expected to remain cautious, with no imminent rate cuts.
  • SA Bonds & FRAs
    • SA bond market recovers, tracking ZAR gains.
    • Investors expect the SARB to pause further rate cuts.
    • Vanilla bond auction expected to clear comfortably.
    • FRAs suggest no further SARB cuts priced in for 2025.

Outlook

  • ZAR’s recovery depends on China’s response—if Beijing retaliates, markets could turn risk-off again.
  • Trump’s tariff strategy remains unpredictable—any further escalations could weigh on EM currencies.
  • SARB likely to hold rates steady—recent volatility underscores the importance of a conservative monetary stance.
  • Markets remain cautious, with focus on upcoming negotiations between the US, Mexico, and Canada.

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