Daily Market Report – 9 June 2025

South Africa: A Balancing Act in Parliament

1. Fiscal Framework Debate: Optics vs. Outcomes

• Parliament’s debate on the GNU-endorsed fiscal framework will dominate this week. While expected to pass, the real stakes lie in whether the implementation fosters growth.
• The current framework leans heavily on fiscal consolidation, which helps credibility but cannot generate growth on its own.
• Core issue: South Africa’s gross fixed capital formation dropped to just 14.2% of GDP — far below the NDP target of 30%, and even below mid-2000s levels under Manuel-Mbeki.
• The debate also revives discussion about cutting social spending, reducing the bloated public sector, and liberating private sector investment through deregulation.

2. Stats SA Funding Crisis

• Statistician-General’s warning signals a critical lack of funding, raising concerns over data quality and economic visibility.
• Without robust data, policy error risks rise — this undermines credibility, especially for investment-grade ambitions and FATF greylist exit hopes.

FX Market: ZAR Resilient, Poised for Consolidation

1. USD-ZAR Trends

• Spot: 17.7600, with intraday range: 17.60 – 18.10
• Technically: The pair tests the 76.4% fibo level (17.70) again. Support near 17.60 is critical to hold ZAR strength.
• Despite stronger-than-expected US jobs data (139k vs. 130k est), the ZAR has remained firm, showcasing resilience.

2. Drivers of Rand Performance

• Strong ZAR anchored by:
  • Narrow current account deficit
  • Inflation targeting shift expectations
  • Improved fiscal auction performance
• Risks ahead:
  • Parliamentary tensions
  • Weak institutional capacity (Stats SA warnings)
  • Persistent policy uncertainty

3. USD Outlook

• USD modestly stronger post-NFP, but medium-term fiscal deterioration under Trump remains a drag:
  • Trump proposes 100bps Fed rate cut
  • No credible offsetting spending cuts
  • Loss of AAA rating continues to weigh on sentiment

Fixed Income: Bonds Hold Strong, Eyes on Greylist Exit

1. Auction Signals & Breakeven Compression

• Treasury met its R1bn ILB issuance target, though bid volumes dipped from last week.
• Breakeven inflation rates compressed:
  • 5-year: 4%
  • 10-year: <5%
• SARB’s 3% inflation targeting simulations imply:
  • 2025 inflation = 3.0%
  • 2027 inflation = 3.0% vs 4.4% currently projected

2. Real Yield Edge & International Flows

• These projections and low oil prices (~$65/bbl) point to under-control inflation, supporting:
  • ZAR-denominated assets
  • Foreign inflows into local bonds
• Constructive fiscal tone + greylist removal could ignite a virtuous cycle for local debt.

FRA Curve: Easing Hopes Tempered

• The SARB is still expected to hold rates unless inflation drops significantly below the 3% target.
• Even as cuts are priced in, uncertainty around inflation targeting and external volatility temper the outlook for dovish shifts.

Global Market Outlook: Caution Still Rules

1. Labour Market Steady, but Risks Loom

• US NFP print: +139k, with unemployment steady at 4.2%
• Markets pushed back first Fed cut to Sept, removing hopes for 3 cuts in 2025
• Fed remains on hold for June, eyeing CPI data on June 11

2. Global Trade Outlook

• Trump-Xi talks back on; London June 9 meeting key for tariff clarity
• US-Korea & EU-US auto deals show progress, but fiscal fragility in US limits the scope for resolution-driven rallies

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