Daily Market Report 6 June

Daily Market Report – 6 June 2025

South Africa: ZAR Strength Underpinned by Strong Data & Inflation Talk

1. Current Account: Narrower Than Expected

  • Q1 2025 current account deficit: -R36bn, much narrower than the -R50bn forecast and below Q4 2024’s revised -R39bn.
  • As a percentage of GDP: -0.5%, unchanged from the prior quarter.
  • Key driver: Services and income deficits narrowed, offsetting a small deterioration in the trade balance.
  • The trade surplus eased slightly to R221.2bn (from R226.4bn), but both exports and imports rose in value, reflecting healthy demand and improved terms of trade.
  • Importantly, gold exports and stronger rand pricing contributed to a positive trade narrative.

2. Structural Benefits: Lower Inflation Target in Sight

  • Discussion to reduce the inflation target below 3% continues to gain traction.
  • SARB hosted a global forum on inflation targets earlier this year — consensus supported the move.
  • National Treasury hasn’t formally adopted the shift, but no opposition noted, suggesting alignment is near.
  • Structural implications: Lower expected inflation supports long-term ZAR strength, eases debt servicing costs, and supports bond market performance.

FX Market Insight: ZAR in Command

1. USD-ZAR Performance

  • Spot: 17.7400, with intraday range 17.60–18.10.
  • Key technical level: 76.4% fibo retrace at 17.70, now acting as support.
  • No immediate reversal pattern evident — bulls may push for 17.60 next, where stronger support exists.

2. Drivers of ZAR Resilience

  • Stronger local fundamentals: Narrow current account deficit and inflation credibility.
  • Weaker USD backdrop: DXY slipping to 98.80 amid poor US macro data.
  • USD sentiment dampened by:
    • Higher US jobless claims
    • Tariff uncertainties
    • Potential softness in today’s NFP release
  • Speculative positioning still reflects a deeply discounted ZAR, offering upside if reform momentum builds.

Fixed Income: Bonds Rally as Outlook Improves

1. Bond Market Momentum

  • Yields dropped 25–30bp this week, buoyed by:
    • Reduced inflation expectations
    • ZAR strength
    • Structural shift to lower inflation target
  • 10-year SAGB yields briefly dipped below 9.99% — a three-year low.
  • Today’s ILB auction is a litmus test:
    • Past auctions underwhelmed
    • With inflation expectations falling, vanilla bonds outperform ILBs

2. FRA Curve Trends

  • 2X5 spread vs JIBAR: Narrowed to -24bp
  • 3X6 vs JIBAR: Compressed to -25bp
  • 6X9 spread still reflects 41bp of easing, but:
    • Market consensus: Only one cut likely in 2025
    • Two cuts look increasingly improbable unless inflation falls significantly further

Global Macro Watch: All Eyes on US NFP

1. Labour Market Tensions in the US

  • Jobless claims hit a 7-month high at 247k, showing a labour soft patch
  • Today’s NFP expected at 130k (vs 177k prior) — could cement Fed pivot
  • If weak, Fed rate cut in September becomes baseline expectation

2. Global Trade & Tariff Updates

  • Trump and Xi spoke — US-China tariff talks resume, offering a brief reprieve
  • US trade deficit narrowed sharply in April, but prior surge shows fragility
  • Global sentiment remains shaky amid:
    • Tariff volatility
    • Rising fiscal deficits (esp. US with Trump’s “big beautiful bill”)
    • Weak Eurozone demand despite ECB rate cuts

3. Currency Markets

  • Euro remains strong post-ECB (25bp cut), with hawkish undertones limiting downside
  • Sterling bullish — 40-month highs against USD due to less aggressive BoE easing
  • JPY and CHF underperform amid risk-on tone and stronger EUR

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