5 Dec

Daily Market Report 5 Dec

A Noisy International Environment Keeps Focus Abroad, Offering USD Support

Talking Points

  • SA: Eskom identifies a buyer for its R9bn home loan company, signaling a move toward divestment.
  • SA: Moody’s affirms SA’s stable outlook, balancing fiscal challenges with institutional strengths.
  • SA: G20 presidency positions SA to advocate for debt relief for emerging markets.
  • EU: French government collapses in a dramatic vote of no-confidence, adding to eurozone uncertainty.

South Africa: Navigating Domestic Gains Amid Global Noise

Consumer Confidence Softens Slightly in Q4 2024

  • BER Consumer Confidence Index (CCI):

    • Declined marginally to -6 points from -5 points in Q3 2024.
    • Still the highest festive season reading since 2019, significantly improved from -17 points in Q4 2023.

  • Key Sub-Index Trends:

    • Economic outlook: Fell back to -9 points, reversing gains made earlier in the year.
    • Household finance: Dropped to 11 points from 14 points, reflecting some moderation in sentiment.
    • Durable goods purchases: Improved to a two-year high of -21 points, suggesting potential retail sales strength in Q4.

Moody’s Maintains Stable Outlook for SA

  • Balanced Assessment:

    • Cites institutional strengths such as a robust judiciary, deep financial markets, and an independent central bank.
    • Warns about structural growth constraints, high inequality, and elevated debt levels (~80% of GDP).

  • Investor Reaction:

    • Moody’s assessment aligns with expectations, leaving markets largely unmoved.
    • Investors remain cautious, waiting for February’s budget to confirm reform momentum.

Economic Resilience Despite Challenges

  • Standard Bank PMI:

    • Recorded 50.9 in November, marking the fourth consecutive month of expansion.
    • Driven by falling inflation, stable power supply, and optimism surrounding the GNU.

  • Two-Pot Withdrawals:

    • Estimated R40bn has entered the economy, boosting household liquidity and supporting retail sales.

Market Insight – FX

ZAR: External Factors Drive Sentiment

  • Rangebound Performance:

    • The ZAR remains anchored near 18.1550, with resistance at 18.2650 and support at 17.9550.
    • Global risk events, rather than domestic news, dominate sentiment.

  • Key Drivers:

    • Trump Optimism: Markets remain buoyant as speculation builds over his economic strategy, despite concerns about geopolitical risks, including tensions around Ukraine.
    • USD Strength: The dollar remains supported by Fed Chair Powell’s cautious tone on further rate cuts.

  • Short-Term Outlook:

    • Today’s weekly jobless claims data and tomorrow’s non-farm payrolls will likely set the tone for the USD and, by extension, the ZAR.
    • A weaker-than-expected payroll reading could soften USD strength, giving the ZAR room to recover.

Global FX Trends

  • Euro Vulnerability:

    • Political turmoil in France and Germany weighs on the euro, with EUR/USD pivoting around 1.0500.
    • December seasonality favors a EUR/JPY rally, but sentiment remains fragile.

  • Sterling Steady:

    • GBP/USD holding near 1.2700, despite BoE Governor Bailey’s dovish remarks on rate cuts in 2024.

  • JPY Under Pressure:

    • USD/JPY trades above 150.00, with limited upside momentum as markets await further clarity on BoJ policy.

Market Insight – Fixed Income

SA Bonds: Stable but Awaiting Reform Signals

  • Moody’s Impact:

    • While Moody’s affirmation of SA’s stable outlook is reassuring, it lacks the optimism of S&P’s recent positive revision.
    • Bond yields ticked higher but remain within a range, reflecting investor caution.

  • Reform Hurdles:

    • Privatization efforts, such as Eskom’s sale of its home loan company, offer hope but remain constrained by political and bureaucratic challenges.
    • The Durban port tender debacle highlights the need for streamlined procurement processes and SOE reforms.

  • Outlook:

    • February’s budget will be critical in signaling whether the GNU can address fiscal and structural challenges effectively.

FRAs

  • Consolidation Amid Uncertainty:
    • 3X6 vs 3m JIBAR: Tightened to -32bp, signaling confidence in a January rate cut.
    • 9X12 vs 3m JIBAR: Narrowed to -68bp, reflecting expectations of three rate cuts in 2025.

Global Bond Trends

  • US Treasuries:
    • Stabilized after Powell’s comments suggested a slower pace of rate adjustments.
    • 10-year yields hover near 4.20%, with upcoming labour data expected to influence the Fed’s December decision.

Strategic Insights

Short-Term Drivers

  1. US Labour Data:
    • Non-farm payrolls tomorrow will be pivotal in shaping USD sentiment and influencing global risk appetite.
  2. Geopolitical Risks:
    • Developments in France, South Korea, and Ukraine will continue to dominate headlines, potentially supporting the USD as a safe haven.

Long-Term Considerations

  1. SA Structural Reforms:
    • Progress on privatization, fiscal discipline, and SOE efficiency is critical for sustained ZAR resilience.
  2. Global Rate Dynamics:
    • The Fed’s cautious stance and global monetary easing cycles will shape bond market performance and currency trends into 2025.

 

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