Daily Market Report 6 Mar

Daily Market Report 6 Mar

Markets Rally as Trump Softens Stance on Tariffs

Key Developments

  • South Africa:
    • Business Conditions Weaken at a Slower Pace: PMI rises to 49.0 in February but remains below 50.0, signaling continued weakness.
    • Transnet & Unions in Wage Battle: Labor tensions could impact SA’s fragile logistics system.
    • Mining Industry in Crisis: GDP data highlights declining investment in the once-dominant mining sector.
  • United States:
    • Trump Grants 1-Month Tariff Reprieve:
      • Canada & Mexico’s automakers get temporary relief, boosting sentiment.
      • Investors see this as a sign Trump is open to negotiations if US companies are hurt.
    • Stock Market Rebounds:
      • Wall Street erases losses, led by auto stocks and industrials.
      • Trade war fears ease, providing relief to risk assets.
    • Dollar Weakens Further:
      • The USD Index hits a four-month low at 104.25, reflecting weaker economic outlook.
      • Markets price in 2-3 Fed rate cuts by year-end, boosting risk appetite.

Market Insight – FX

  • ZAR Performance:
    • Spot: 18.2950 | Range: 18.0950 – 18.3960
    • Key Drivers:
      • USD Depreciation Accelerates:
        • Investors position for a weaker US economy & lower rates.
        • Risk sentiment improving, supporting emerging market currencies.
      • Gold Prices Remain Elevated:
        • Strong terms of trade help ZAR resilience.
      • R209-US 10-Year Yield Spread at 630bp:
        • Encourages inflows into SA bonds, supporting the currency.
  • Risks:
    • Budget Uncertainty Next Week: A prudent fiscal policy could boost the ZAR, but failure to address spending may weigh on sentiment.
    • US Tariff Policy Still Uncertain: Trump’s temporary reprieve does not guarantee long-term relief.
  • Technical Levels:
    • Support: 18.2900, with a break lower targeting 17.9550 in coming weeks.
    • Resistance: 18.6050, if risk sentiment deteriorates.

Market Insight – Fixed Income

  • US Treasuries & Global Bonds:
    • US 10-Year Yield Ticks Higher:
      • Rising for third straight session, driven by better ISM data.
    • German Bonds Sell Off:
      • 30-Year Bund Yields Jump 25bps on €500bn infrastructure plan.
      • Debt issuance increases supply risks, pushing yields higher.
  • SA Bonds & FRAs:
    • Investors Await Budget Clarity:
      • Direction remains rangebound as markets seek fiscal policy signals.
    • Yield Curve Steepening Slightly:
      • Investors optimistic that a growth-supportive budget is on the way.
    • FRAs Reflect Growing Rate Cut Bets:
      • 3X6 FRA: 20bp cut priced in.
      • 6X9 FRA: 28bp cut expected for Q3.
      • 9X12 FRA: 36bp cut, as rate cuts look more certain.

Outlook:

  • ZAR Could Strengthen If:
    • USD Weakness Persists: Continued dollar depreciation could push ZAR below 18.0000.
    • SA Budget Surprises Positively: A prudent budget with fiscal discipline could boost investor confidence.
  • ZAR Could Weaken If:
    • US Trade War Fears Resurface: Trump could reimpose tariffs, triggering market volatility.
    • SA Budget Disappoints: Unclear fiscal strategy could erode ZAR support.
  • Key Events to Watch:
    • US Nonfarm Payrolls (Friday): A weaker-than-expected jobs report could fuel USD selling.
    • SA Budget (March 12): Clarity on VAT & expenditure cuts will shape market sentiment.

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