Daily Market Report – 8 May 2025

South Africa: Budget Optimism Builds as Vulindlela Ramps Up

Operation Vulindlela Phase II

President Ramaphosa has tied the upcoming May 21 budget to Phase II of Operation Vulindlela, focusing on:

• Infrastructure investment (energy grid upgrades, digital expansion)
• Local government service delivery
• Private sector inclusion (independent transmission operator = semi-liberalisation of energy)

These reforms, if funded effectively, could unlock stalled growth and address structural constraints. Execution is still the wildcard, but aligning fiscal resources with Vulindlela’s goals boosts confidence.

FOMC Recap: Holding Steady Amid Uncertainty

Key Takeaways

• Fed Funds Rate held at 4.25%–4.50% (expected)
• Powell flagged stagflation risk due to tariffs
• Refused to preemptively cut due to uncertain data
• Emphasized data dependency and waiting for trade negotiation outcomes

This keeps global rate expectations grounded. Fed Fund Futures have trimmed down from pricing four rate cuts to two or three by year-end.

ZAR Outlook: Supported by Reform Hopes, Capped by Technicals

Why ZAR Remains Resilient

• Carry-attractiveness still among best globally
• Gold prices remain high
• Vulindlela + fiscal consolidation = perception of governance progress
• GNU functioning, not fracturing

USD-ZAR Technical Outlook

• Spot: 18.2250
• Support: 18.13 (yesterday’s low), 18.18 (200-day MA)
• Resistance: 18.45 (Fibo retrace + prior highs)

Momentum has slowed, but risk remains biased to further ZAR strength, especially if:

• Budget surprises positively
• Fed tone remains neutral to dovish
• Risk sentiment stays constructive

Fixed Income: Market Holding for Budget Clarity

Bonds/Yield Curve

Ramaphosa’s budget comments have been well-received by bond markets:

• Focus on infrastructure + fiscal sustainability = less fear of deficit explosion
• Yields are still elevated, but could moderate if budget execution aligns with reform rhetoric

Bond investors are in wait-and-see mode, but sentiment is improving:

• Yields may fall post-budget if it meets reformist expectations and garners GNU support

FRA Curve Update (Post-FOMC)

Markets still expect SARB easing, but not aggressively—ZAR stability, and CPI outlook remain key.

Global: Trade Wars, Euro Strength, and Treasury Flattening

Trade Tensions

• EU preparing countermeasures if US tariffs escalate
• China-US trade talks in Switzerland may reduce friction
• Trump tariffs remain sticky, but market bets are on eventual negotiations

EUR/USD & GBP/USD

• EUR/USD: Trading around 1.13–1.16, with bullish skew (call option bias)
• GBP/USD: Lifted by UK-US trade deal rumours, testing 1.3350 resistance

UST Yields Drop Post-FOMC

• 10Y yield: 4.275%
• Curve flattening as Fed stays cautious
• Long-end pressured by deficit concerns and global reserve diversification

Final Takeaways

The ZAR’s strength rests on three pillars:

1. 1. High real yields + commodity support
   2. Policy reform signals (Vulindlela, fiscal tightening)
   3. Improved governance perception under the GNU

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