Daily Market Report 4 Mar

Daily Market Report 4 Mar

ZAR Resilient Despite Tariff Shock & US Growth Fears

Key Developments

  • South Africa:
    • SARS Targets Gold Mafia Money: Crackdown extends to US & UAE assets linked to illicit gold trade.
    • SA Vehicle Sales Improve: February data shows gradual recovery in consumer demand.
    • Q4 GDP Data Incoming: A stronger-than-expected print could boost ZAR sentiment.
  • United States:
    • Trump Imposes 25% Tariffs: Canada & Mexico hit with tariffs effective today.
    • GDP Now Reading Crashes: US growth estimate tumbles from 3.9% to -2.8%, raising recession fears.
    • Fed Rate Cut Bets Rise: Markets now fully price in 3 rate cuts by 2025, weighing on USD.
  • Global:
    • EU Plans Ukraine Ceasefire: UK & France push for 1-month truce to de-escalate war.
    • China & Europe to Retaliate on Tariffs: Expect countermeasures against US exports, raising trade tensions.

Market Insight – FX

  • ZAR Performance:
    • Spot: 18.6300 | Range: 18.4175 – 18.7250
    • Key Drivers:
      • US GDP Collapse: The sharp drop in growth expectations has sent US bond yields tumbling, easing ZAR pressure.
      • Trade War Uncertainty: The ZAR held up well despite tariff announcements, as countermeasures against the US weakened the dollar.
      • SA GDP Data Release: A stronger print could support ZAR, but budget concerns remain a risk factor.
  • Risks:
    • US Tariff Fallout: If Canada, Mexico & China retaliate aggressively, it could trigger market-wide panic selling.
    • SA Budget Uncertainty: If the March 12 budget disappoints, ZAR could lose ground quickly.
  • Global FX Trends:
    • USD Index: 106.45, under pressure as Fed rate cut bets mount.
    • EUR/USD: 1.0500, gains as EU pushes for peace in Ukraine.
    • GBP/USD: 1.2700, supported by hawkish BoE expectations.
    • USD/JPY: 149.80, yen strength driven by rate hike bets.

Market Insight – Fixed Income

  • US Treasuries & Global Bonds:
    • US 10-Year Yield Hits 4.14%: Down from 4.80% in January, as markets price in a slowdown.
    • Fed Rate Cut Expectations Surge: Markets now fully price in 3 rate cuts in 2025, signaling easing cycle ahead.
  • SA Bonds & FRAs:
    • Foreign Investor Sentiment:
      • SA-US Yield Spread Widens to 657bp: Making SA bonds more attractive.
      • Budget Concerns Loom: Fiscal discipline is crucial for maintaining bond market stability.
    • FRAs Reflect Growing Rate Cut Bets:
      • 3X6 FRA: 16bp cut priced in.
      • 6X9 FRA: 21bp cut expected for Q3.
      • 9X12 FRA: 25bp cut, signaling monetary easing cycle ahead.

Outlook:

    • ZAR Faces Pressure If:
      • US Stock Market Collapses: Further equity sell-offs could drive capital outflows from emerging markets.
      • SA Budget Fails to Impress: If spending cuts aren’t prioritized, ZAR could weaken sharply.
    • ZAR Could Recover If:
      • US Data Continues to Disappoint: Weaker PCE inflation or jobs data could accelerate rate cut expectations.
      • SA GDP Data Surprises to the Upside: A strong Q4 GDP print could boost sentiment.
    • 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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