Daily Market Report 8 Nov
Trump Trade Moderates Post-Elections
The market’s initial reaction to President Trump’s electoral victory has begun to normalize, and the dollar index has softened after surging in the immediate aftermath. Major global currencies, including the euro and pound, have rebounded, each gaining over 0.7%, while the yen recovered nearly 1% of its prior losses. U.S. stocks have maintained upward momentum on hopes of forthcoming tax cuts and pro-growth policies under Trump’s leadership. Meanwhile, U.S. Treasury yields dipped slightly ahead of the FOMC’s meeting. The Federal Reserve’s anticipated 25bp rate cut has shifted investor focus back to monetary policy adjustments, with expectations for more rate cuts in the coming months.
Fed Rate Cut and Economic Guidance
Last night, the Federal Reserve announced a 25bp rate cut, signaling a commitment to supporting an economy that has shown signs of slowing. Fed Chair Jerome Powell addressed concerns about potential inflationary pressures from Trump’s proposed policies—such as higher tariffs, tax cuts, and stricter immigration laws—by reaffirming that the Fed will respond to observed trends rather than speculations. The Fed’s approach aims to stabilize inflation around its 2% target, emphasizing a data-driven strategy amid uncertain political influences. The move to cut rates has provided relief to global markets, weakening the USD and opening the door for further rate reductions if needed.
Impact on the South African Market
The rand ended the week on a strong note, trading at 17.3700, supported by the Fed’s dovish stance. The currency’s recovery from losses sustained post-election is notable, as it benefits from a favorable interest rate differential and renewed foreign interest in emerging markets. The ZAR could potentially test support at 17.2600, with the 17.6000 level acting as resistance heading into the weekend.
The SARB, observing the rand’s performance and stable bond yields despite equity market surges, now has room to implement its own 25bp rate cut at the next policy meeting. This expected move would contribute to an improved inflation outlook and reinforce market confidence. However, challenges remain, including the ongoing Eskom and Transnet issues, and the financial strain from SOE bailouts.
Municipal and Structural Challenges in SA
Eskom’s decision to cut off supply to City Power over R10bn in unpaid bills and the economic toll from the Lebombo border closure, which compounds Transnet’s logistical issues, underscore the country’s persistent infrastructure and fiscal challenges. These developments continue to weigh on growth prospects, despite positive currency trends. The future stability of the GNU coalition and the potential for private sector involvement in solutions will be critical in shaping the outlook.
Global Currencies and Central Bank Actions
- EUR/USD: The euro climbed to $1.0794 as markets assessed the implications of Germany’s political crisis following the collapse of its ruling coalition. The currency’s recovery was driven more by the weakening dollar than by positive Eurozone developments.
- GBP/USD: The pound experienced gains, trading above 1.2900 following the BoE’s 25bp rate cut to 4.75%. Governor Andrew Bailey emphasized the need for a cautious approach to avoid straying from inflation targets, suggesting future rate cuts will be gradual.
- USD/JPY: The yen’s reversal marked a recovery in safe-haven demand as traders shifted focus to global political and economic developments post-election.
Fixed Income and Bond Market Trends
SA bonds rallied, supported by the strengthening rand and the Fed’s rate cut, which took pressure off U.S. yields. The I2038, I2046, and I2050 inflation-linked bond auction by South Africa’s National Treasury attracted attention as investors evaluated breakeven rates and demand amid bond market stabilization.
Global Fixed Income Insight
The U.S. bond market reflected tempered expectations for aggressive Fed action despite Trump’s potential inflationary policies. The Fed, with Powell reaffirmed as Chair until 2026, will likely adopt a wait-and-see approach to any fiscal shifts that emerge. The moderation in inflation and weak M2 money supply growth suggest that central banks worldwide may continue with rate cuts into 2025, barring significant fiscal expansion.
Outlook
The path forward remains closely tied to how Trump’s administration executes proposed policies and their impact on global markets. For South Africa, the rand’s resilience is a positive sign, but economic fundamentals—such as resolving municipal and SOE challenges—will be key to sustaining momentum. The Fed’s policy stance, alongside any fiscal changes in the U.S., will continue to play a pivotal role in shaping global economic conditions.
Why Choose TreasuryONE?
Minimise the impact of market volatility on your bottom line by getting access to an experienced team of dealers that provides expert market advice – validated by facts and figures, not feelings or hearsay.
We customise risk management strategies to achieve the most competitive rates in a fast-moving and complex marketplace.
We provide effective and measurable processes for managing:
- Exchange Rate Risk arises when an organisation conducts business in multiple currencies, either through exports and imports, or through foreign operations.
- Commodity Price Risk is the financial risk posed to an entity’s financial performance and profitability by fluctuations in commodity prices that are primarily driven by external market forces and are therefore beyond the entity’s control.
- Interest Rate Risk management for companies involves identifying, measuring, and managing the potential impact of changes in interest rates on a company’s financial position and profitability.