Daily Market Report 6 Feb

Daily Market Report 6 Feb

ZAR Eyes SONA for Policy Clarity Amid USD Weakness

Key Developments

  • US-China Trade Tensions & Global Market Impact
    • China files WTO complaint over US tariffs & cancels duty-free exemptions.
    • Fed officials cautious on inflation risks from Trump’s tariffs & labor market disruptions.
    • US PMI data weaker than expected, raising recession fears & fueling Treasury rally.
  • SA Domestic Focus: SONA & Economic Challenges
    • Business activity contracts sharply, with PMI falling to 49.9, signaling weak demand.
    • SA government clarifies land expropriation policy to calm investor concerns.
    • Ramaphosa expected to emphasize reforms in SONA, particularly around fiscal stability & private sector inclusion.

Market Insight – FX

  • ZAR Performance
    • Spot: 18.5650 | Range: 18.4175 – 18.8650
    • ZAR gains as USD weakens, with trade-weighted USD now lower than pre-tariff levels.
    • SONA will be key—investors looking for clarity on economic reforms & fiscal direction.
    • Support at 18.4175, while resistance at 18.8650 may limit further gains.
  • Global FX Trends
    • USD consolidating above 107.60, with focus on upcoming US economic data.
    • EUR/USD stable near 1.0400, with ECB rate path uncertain due to potential disinflationary effects of tariffs.
    • GBP/USD at one-month high, as UK seen as less exposed to Trump’s trade measures.
    • USD/JPY drops below 152.00, as BoJ signals rate hikes amid rising inflation risks.

Market Insight – Fixed Income

  • US Treasuries & Global Bonds
    • 10-year yield falls to 4.515%, reflecting concerns over US economic resilience.
    • Markets now pricing in nearly two Fed rate cuts by mid-year, with first likely in June or July.
    • Eurozone bond yields at multi-week lows, as ECB rate expectations adjust downward.
  • SA Bonds & FRAs
    • SA bonds rebounded, tracking ZAR recovery & lower US Treasury yields.
    • Investors looking to SONA for fiscal clarity, particularly around private sector involvement & deficit reduction.
    • FRAs now pricing in another SARB rate cut in Q3, as 6X9 FRA widens to 24bp & 9X12 now fully pricing a 25bp cut.

Outlook

  • ZAR stability hinges on SONA & Ramaphosa’s economic messaging.
  • Investors watching Fed & US labor data for clues on rate-cut trajectory.
  • Bond market sentiment improving, but SA fiscal credibility remains key for long-term gains.
  • Global risk appetite remains fragile, with US-China trade war escalation a key wildcard.

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