Daily Market Report 5 June

Daily Market Report – 5 June 2025

South Africa: Data Lifts But Confidence Slips

1. Business Confidence Takes a Hit

  • The BER Business Confidence Index fell to 40 in Q2 2025, from 45 in Q1, halting the fragile recovery seen in early 2024.
  • Declines were broad-based across sectors, except wholesale trade, which saw a volatile rebound to 50 points.
  • Consumer-facing sectors weakened despite supportive macro variables (e.g., lower inflation, easing SARB policy, and two-pot pension payouts).
  • US–SA diplomatic tensions and domestic logistical constraints weighed heavily on business expectations.
  • A VAT hike was ruled out, providing slight relief, but lack of visible reforms under the GNU continues to cap optimism.

2. S&P Global PMI Shows Surprise Rebound

  • May PMI = 50.8, up from 50.0 in April — fastest expansion in four years.
  • Drivers: Domestic demand recovery, inventory build-up, and easing cost pressures due to rand strength.
  • Caveats: Employment slipped, and backlogs increased, suggesting potential future strain.
  • Export orders declined — a direct impact of Trump’s revived trade tensions and tariffs.

FX Market: Rand Holds Gains, USD Wobbles

1. ZAR Holding Firm

  • Spot: 17.84, range: 17.75–18.05.
  • Support at 17.75 holding strong — a floor for now.
  • A USD-ZAR retrace to 18.2675 is technically possible (23.6% Fibo level), but fundamentals favor ZAR strength short-term.
  • Key supports:
    • Strong gold prices
    • Risk-on sentiment (VIX < 18)
    • Robust bond inflows due to lower US and SA yields

2. USD Under Pressure

  • ADP Jobs Report: Weak (152k vs. 188k forecast)
  • ISM Services PMI: Contracted to 48.6, worst in a year
  • “Big Beautiful Bill” (Trump): Slammed by the CBO (adds $2.4trln to deficit), drawing criticism from Elon Musk and markets alike
  • Trump also reintroduced travel bans on 12 nations, escalating geopolitical concerns
  • Fed Funds Futures: Fully pricing in 50bp of cuts by Dec 2025

Bond Market: Rally Gains Momentum

1. Domestic Bonds

  • 10Y SAGB yields fell to 9.99%, a 3-year low
  • Parliament support for fiscal framework boosted confidence
  • FinMin Godongwana confirmed pending review on lowering inflation target — aligns with SARB’s push for 3%
  • Greylist exit hopes, solid policy signaling, and good liquidity = solid bond demand

2. FRA Curve

  • 3X6 and 6X9 vs JIBAR spreads unchanged, still reflect ~43bp of easing
  • SARB’s rate path uncertain, with inflation near the lower end of the range, but two cuts look unlikely unless inflation trends much lower

Global: Trade War, Rate Cuts, and Euro Pressure

1. ECB and Euro Outlook

  • ECB expected to cut rates today by 25bp to 2.0%
  • Eurozone inflation below target at 1.9%
  • Euro speculative longs rising, but dovish ECB stance could cap upside

2. Bond and Equity Markets

  • US Treasuries rallied hard — 10Y yields hit early-May lows
  • Market sees 2 Fed cuts in 2025
  • Despite fiscal risk, German bunds remain attractive (sound fiscal base, ECB easing)
  • Broader risk assets buoyed by dovish policy bets and lower volatility

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