9 Dec

Daily Market Report 9 Dec

Another Busy Data Week Ahead of the Holidays

 

Talking Points

  • SA: LSE report highlights South Africa’s racial wealth divide as among the worst globally.
  • SA: GNU parties receive a boost in recent by-elections, building momentum for reforms.
  • SA: Mining sector under strain, with profitability pressure weighing on its GDP contribution.
  • CH: Chinese inflation hits five-month low, signaling further economic deceleration.

South Africa: Data and Political Developments in Focus

 

Economic Data Highlights

  • Key Releases This Week:

    • Inflation Data: CPI and PPI for November will guide interest rate expectations for 2025.
    • Labour Market: Q3 Labour Force Survey to shed light on employment trends.
    • Sectoral Performance: Mining, manufacturing, and retail sales data will provide insights into SA’s economic health.
    • SARB Quarterly Bulletin: Details on fiscal sustainability and monetary trends.

  • Fiscal Landscape:

    • GNU Progress: Recent by-election wins signal growing support for the government’s reform agenda.
    • Mining Challenges: Rising costs and falling margins in the mining sector limit its GDP contribution.
    • Focus on February Budget: Investors await signs of meaningful fiscal reform and private sector inclusion.

Market Context

  • Current Dynamics:
    • SA’s 2024 performance has been boosted by political stability, falling inflation, and SARB rate cuts.
    • Terms of Trade Risk: A global slowdown and lower commodity prices may impact SA exports.
    • Structural Reforms Needed: While green shoots are visible, sustained growth requires tackling structural inefficiencies.

Market Insight – FX

 

ZAR: Consolidation Amid Data-Heavy Week

  • ZAR Performance:

    • Spot at 18.0450, with a range of 17.89/18.1800.
    • ZAR has recovered from recent lows, supported by expectations of lower global interest rates.

  • Domestic Drivers:

    • Mixed domestic data and concerns about fiscal risks have kept investors cautious.
    • SARB’s conservative tone and narrow current account deficit offer some support.

  • Global Influences:

    • USD-ZAR direction depends on Fed rate cut decisions and international central bank actions this week.
    • Investors will also weigh Trump’s protectionist policies and their potential impact on global trade and the USD.

Global FX Trends

  • USD:

    • Strengthened after strong US jobs data but remains under pressure from rising unemployment and Fed rate cut expectations.

  • EUR/USD:

    • Hovering near 1.0570 ahead of Eurozone investor confidence data.
    • Political risks in France and Germany weigh on sentiment.

  • GBP/USD:

    • Trading around 1.2700, supported by efforts to reset EU-UK trade relations.

  • JPY:

    • Strengthened slightly below USD/JPY150.00 on safe-haven demand amid regional uncertainties.

Market Insight – Fixed Income

 

Bonds and Yield Curve

  • Inflation Expectations:

    • This week’s CPI and PPI data will shape expectations for SARB’s 2025 rate path.
    • Global trends, including Chinese disinflation, may drive lower bond yields.

  • Monetary Policy:

    • The ECB is expected to cut rates this week, adding downward pressure on global yields.
    • The Fed and BOJ will hold live meetings next week, with the Fed likely to ease further as unemployment rises.

  • SA Bond Market:

    • Yields remain range-bound ahead of key data.
    • The SARB’s quarterly bulletin and labour market data will guide positioning into the year-end.

FRAs

  • Current Curve Positioning:
    • 3X6 vs 3m JIBAR: Held at -32bp, indicating another rate cut in January.
    • 6X9 Spread: Consolidated at -62bp, signaling two cuts in H1 2025.
    • 12X15 Spread: -75bp, reflecting expectations of three cuts next year.

Strategic Insights

 

Short-Term Drivers

  1. Inflation Data:

    • CPI and PPI will shape SARB policy expectations.
    • Lower inflation could cement expectations of a 25bp cut in January.

  2. Global Central Banks:

    • ECB and RBA rate decisions will influence global yields and EM currency dynamics.

  3. US Labour Market Data:

    • Weak data could weigh on the USD and lower UST yields, supporting ZAR.

Long-Term Considerations

  1. Structural Reforms:

    • SOE privatization and fiscal discipline are critical to SA’s growth trajectory.
    • Investors will look for tangible progress in February’s budget.

  2. Global Risks:

    • Uncertainty around Trump’s trade policies and slowing Chinese growth remain key risks.

 

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