Weekly market brief - 27 February 2025

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* Rand in limbo
* U.S. GDP in line with expectations
* Fed takes a cautious approach
* EU to stand up to Trump
* Trump tariffs to reshape trade

Currency Outlook

  • “The rand is on the defensive on Thursday as the USD appreciates more broadly on the back of rising U.S. Treasury yields. Despite this, the pair continues to trade within a well-worn range. The market’s focus is shifting to key U.S. economic data releases on Thursday and Friday in the form of the latest update to the U.S. GDP numbers for Q4 and the PCE inflation statistics. These prints – especially the latter – hold the potential to move markets more materially into the weekend. Technically speaking, the USD-ZAR is approaching a juncture where the market will soon need to break decisively in either direction, likely in early to mid-March. Converging long-term support and resistance levels are forcing the pair into a narrowing range, setting the stage for a breakout. With this in mind, note that there has been some speculation around when the Fed will end its Quantitative Tightening policy recently. Recent U.S. data have shown signs of weakness, challenging the Fed’s justification for policy normalisation. With liquidity tightening and government cutting costs, a rise in unemployment and a broader slowdown appears to be unfolding. Mounting evidence thus suggests the Fed may need to ease policy sooner than expected, which would increase pressure on an overvalued U.S. dollar.” (Source: Investec Article dated 27.02.2025)
  • With this mind, we should be mindful of where the rand closes the week. Should the local unit close below the R18.40 mark, this could indicate further strength towards R18.30, R18.20 and below.
  • However, if the rand closes above the R18.40/45 region, we could see the next levels of resistance of R18.50, R18.60, R18.70 and above.

Local Data

  • The SARB’s leading indicator decreased to 112.8 in December from an upwardly revised 114.8 in November.
  • Income from accommodation increased 12.1% y/y in December:
  • Headline consumer price inflation (CPI) rose 3.2% y/y in January following December’s 3.0% y/y increase. (The data was based on an updated basket of goods and services, as well as updated weights.)
  • Headline producer price inflation (PPI) rose 1.1% y/y in January following December’s 0.7% y/y increase. The increase was 0.5% m/m. (The data reflects the new basket weightings)

Interest Rate Outlook

  • The repurchase rate was cut by 25 basis points to 7.50% and the prime lending rate lowered to 11.00% at the January Monetary Policy meeting. Four of the committee members voted in favour of the cut, while two voted for a hold. This was the SARB’s third consecutive cut.
  • The next rate decision of the Monetary Policy Committee will be announced on 20 March 2025.

International News

  • US
    • The U.S. Q4:24 GDP (second estimate) came in as expected at 2.3% q/q, unchanged from the previous estimate, and from 3.1% q/q in Q3:24.
    • U.S. jobless claims came in at 242,000 last week versus 220,000 for the previous week.
    • U.S. Fed Chair Jerome Powell reiterated over the weekend that the Fed is in no rush to cut interest rates.
    • The U.S. Conference Board consumer confidence index fell more-than-expected in February, to 98.3, from an upwardly revised 105.3 in January.
    • U.S. new home sales decreased more-than-expected in January, by 10.5% m/m (to 657,000 annualised), after increasing by an upwardly revised 8.1% m/m in December (to 734,000 annualised).
    • U.S. durable goods orders for January overshot expectations, increasing by 3.1% m/m, after declining by 1.8% m/m in December.
  • Euro zone
    • The Eurozone HCOB PMI data for February suggests that the region has been hit by the rise in uncertainty created by U.S. President Donald Trump’s tariff threats.
    • The Eurozone CPI for January (final estimate) came in at 2.5% y/y, matching the previous estimate, from 2.4% y/y in December.
    • The ECB’s measure of negotiated wage rates was released on Tuesday.
    • The ECB’s meeting minutes of the January policy meeting noted that policymakers deemed it safe to keep calling policy restrictive.
    • French Finance Minister Eric Lombard commented on Thursday that the European Union would “do the same” if the U.S. goes through with the 25% tariffs announced by the Trump administration.
  • United Kingdom
    • The UK S&P Global manufacturing PMI slipped to 46.4 in February, from 48.3 in January.
    • BOE policymaker Swati Dhingra commented on Monday on the state of monetary policy.
    • UK retail sales increased more-than-expected in January, by 1.0% y/y, after having increased by a downwardly revised 2.8% y/y in December.
  • China
    • Chinese regulators have increased scrutiny of overseas investments by domestic companies, according to a Bloomberg report. The move comes as Chinese companies, mainly in the tech sector, stepped up plans to raise funds offshore.
    • China plans to inject at least 400 billion yuan ($55.13 billion) into its biggest banks in the coming months as part of a broader stimulus package, according to a Bloomberg News report on Wednesday.
  • Australia
    • Consumer prices fell 0.2% m/m in January vs December’s 0.8% m/m increase, according to data from the Australian Bureau of Statistics on Wednesday.
    • RBA Deputy Governor Andrew Hauser, speaking before lawmakers on Thursday, said the central bank needs to see more positive news on inflation before cutting rates again.
  • Japan
    • Corporate service-sector inflation accelerated to 3.1% y/y in January, keeping alive expectations of further rate hikes by the BOJ.
    • Japan’s automobile industry association urged government on Tuesday to assist the industry with protection against tariffs the U.S. may implement.
    • Japan’s top currency diplomat, Atsushi Mimura, on Wednesday said that Tokyo saw no problem with the yen’s recent rise, speaking on the sidelines at the Group of 20 finance leaders in South Africa.

Precious Metals

  • Gold rose to $2,956/oz earlier this week as uncertainty over U.S. tariff policies dampened risk appetite.
  • The precious metal fell to $2,879/oz on Wednesday pressured by a stronger U.S. dollar and rising Treasury yields.

Base Metals

  • 3m copper prices were supported around $9,500/t this week on speculation over potential U.S. tariffs on copper imports.

Oil

  • Brent fell to a two-month low of $72.39/bbl on Wednesday as a surprise build in U.S. fuel stockpiles signalled demand weakness and a potential peace deal between Russia and Ukraine continued to weigh on prices.
  • The price recovered on Thursday with supply concerns resurfacing after U.S. President Donald Trump announced a reversal of a license given to Chevron to operate in Venezuela.