Daily Market Report 7 Feb
ZAR Ends Strong Week on a High as SONA and Growth Plan Lift Sentiment
Key Developments
- South Africa: SONA, Economic Plan & Global Perception
- Ramaphosa’s first GNU SONA focused on local government failures and a new Medium-Term Development Plan (MTDP) to boost GDP.
- MTDP targets GDP growth of 2% – 5.4% by 2029, excluding controversial NHI reforms—a notable shift signaling fiscal realism.
- US Secretary of State to skip G20 Summit in SA over land law concerns, a sign of strained diplomatic ties.
- Global response to SA policies continues, with Musk criticizing BEE & US officials questioning property rights.
- Global: Trade Wars & US Economic Policy
- Trump’s tariffs remain a key market theme, with China imposing retaliatory tariffs of up to 15% on US goods.
- 60,000 US federal employees accept buyouts under Trump’s cost-cutting drive.
- Bank of England cuts rates by 25bps, signaling sluggish UK growth & cautious monetary easing.
- US Non-Farm Payrolls report awaited—expected to confirm a slowdown, shaping Fed rate expectations.
Market Insight – FX
- ZAR Performance
- Spot: 18.4250 | Range: 18.2875 – 18.5250
- ZAR surges despite USD stability, reflecting strong local sentiment post-SONA & economic reform optimism.
- Market attention shifting to Budget Speech, which will clarify fiscal sustainability & reform execution.
- Key Support at 18.2875; if broken, further downside possible. Resistance at 18.5250 before testing 18.6650.
- Global FX Trends
- USD Index holding above 108.00, awaiting US job data for rate-cut signals.
- EUR/USD trading heavy, with focus on ECB rate cuts & potential Trump tariffs on EU goods.
- GBP/USD volatile post-BoE rate cut, falling to 1.2357 intraday but stabilizing.
- USD/JPY declines toward 151.00, as BoJ hints at aggressive rate hikes to fight inflation.
Market Insight – Fixed Income
- US Treasuries & Global Bonds
- US 10-year yield rises to 4.438%, but curve flattening signals recession concerns.
- Investors awaiting Non-Farm Payrolls, which could determine Fed rate-cut trajectory.
- SA Bonds & FRAs
- SA bonds rally alongside ZAR, with sentiment improving post-SONA.
- ILB auction today—watch for demand amid improved fiscal optimism.
- FRAs pricing in further SARB rate cuts:
- 3X6 FRA now reflects 18bp cut in Q3
- 6X9 FRA now fully pricing a 25bp cut
- 9X12 FRA has widened to 29bp
- 12X15 FRA has shifted to -33bp, indicating rising probability of easing.
Outlook
- ZAR strength likely to hold, barring external shocks from US-China trade war.
- Focus shifting to Budget Speech for fiscal clarity—execution risks remain key.
- US Non-Farm Payrolls to dictate global risk appetite & Fed expectations.
- SA’s bond market stable, but further ZAR gains could fuel additional rate-cut expectations.
- Markets awaiting China’s next move in response to Trump’s tariffs—potential for escalation remains.
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