GNU in the Spotlight: Policy Tensions, Not Structural Collapse

The DA’s Legal Challenge: A Test of Coalition Mechanics

The Democratic Alliance (DA) has taken the ANC to court over recent amendments to employment equity laws. While this has sparked renewed speculation of a GNU split, the episode should be interpreted as a healthy assertion of ideological independence, not instability.

Key Points:

• Coalition does not imply consensus on all policy matters.
• The DA has remained true to its liberal economic ethos, resisting what it sees as regulatory overreach.
• This friction signals political checks and balances, not fracture.

This challenge is symbolic of the tensions inherent in coalition governance, especially in ideologically polarized landscapes. However, the political calculus for both the ANC and DA still favours cooperation, making an actual split unlikely—at least in the short to medium term.

Economic Angle: Governance Tension and Market Interpretation

ZAR Performance: Rebounding Amid Clarity

Despite political noise, the ZAR has continued its upward trajectory, suggesting that markets:

• See institutional pushback (e.g., legal action) as a stabilizing feature.
• View GNU power-sharing as a net positive that tempers unilateral policy risk.

USD-ZAR Spot: 18.2650, with a downside bias toward 18.2000, the key support level. The trade-weighted ZAR has also strengthened—underscoring how fiscal and governance clarity is boosting investor confidence.

Add to that:

• Gold rally → Boosting terms of trade
• Carry attractiveness → ZAR remains compelling on real yield metrics
• Oil price collapse → Import cost relief and disinflationary pressures

And the case for further ZAR strength toward 18.0000 builds.

Broader Macro Signals: China, Tariffs, and Deflation Risks

China’s Domestic Reorientation and Deflation

• Exporting less to the US (thanks to tariffs), China is flooding domestic markets with supply.
• This risks deflation, which will export disinflationary pressure globally.
• Weak global demand and currency appreciation elsewhere (vs. USD) → ZAR inflation outlook remains muted, increasing the chance of SARB rate cuts.

Market Insight: Fixed Income and FRA Curve

FRA Curve Stability Pre-FOMC

• 2X5 FRA: 29bp cuts
• 3X6 FRA: 45bp cuts
• 6X9 FRA: -59bp
• 9X12 FRA: -63bp
• 12X15 FRA: -64bp

These cuts are contingent on:

• ZAR resilience
• Continued disinflation
• Global monetary easing cycle, especially post-FOMC

Bond Market Sentiment

Despite rising US yields, SA’s domestic yields have benefited from:

• Fiscal optimism over the upcoming third budget
• Diminished GNU risk premium
• Oil disinflation and carry trade inflows

This is stabilizing the long end of the SA yield curve.

Final Thoughts

The GNU’s survival is not binary. It will be messy and loud, but that’s coalition politics. The legal battles, ideological disputes, and policy negotiation processes are all part of the new democratic equilibrium South Africa must navigate. So long as these don’t derail fiscal or institutional reform, markets will likely remain constructive.