Weekly market brief - 23 January 2025

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* What will Trump’s opening be? (Queen’s Gambit, Ruy López or Four Knights Game)
* Rand recovers from year end party
* Trump 2.0 has markets on edge
* SA CPI below expectations
* Stats SA to change CPI weighting
* SARB still expected to cut next week
* IMF keeps SA GDP forecast unchanged
* Trump to impose EU tariffs??
* China’s expected GDP to linger around 5%
* Gold flying high again
* Oil takes a knock

Currency Outlook

  • “Since the beginning of last week, the rand’s performance has been impressive. Recall that last week, the rand weakened to a weekly low of R19.2296/USD, before staging a strong recovery. At last week’s lows, the local unit was looking oversold, which was supported by the RSI (14) momentum indicator. The rand’s rally since has been supported by improved global risk appetite. Following President Trump’s inauguration, the new U.S. President refrained from imposing import tariffs, which has been at the centre of a lot of market turmoil in recent months. Markets have begun to adopt a more balanced view. We are likely to see more gradual U.S. policies implemented than initially anticipated, which hurts the USD, given all the optimism that has been priced into the dollar. On Wednesday, the rand finished the day flat with the open amid some USD strength, closing the session at R18.4904/USD. It appears that the rand has run into some resistance, trading around R18.51/USD. This is linked to the softer local CPI data, which has led the interest rate contracts to price more risk of SARB interest rate cuts. Coupled with some USD strength following uncertainty President Donald Trump’s tariff threats, has stifled further ZAR recovery for the time being.” (Source: Investec Morning dated 23.01.2025)
  • With that in mind, if the rand manages to close this week below the R18.50 mark, we could see the rand strengthen towards the R18.40, R18.30 and below support ranges.
  • However, if the rand closes the week above the R18.55 region, we could see further weakness towards the next resistance levels of R18.60, R18.65, R18.70 and above.

Local Data

  • South Africa's mining output fell 0.9% y/y in November compared with a revised increase of 1.1% in October.
  • Headline consumer inflation rose 3.0% y/y in December from 2.9%, with housing and food major contributors, Statistics South Africa data showed on Wednesday.
  • South African retail sales rose in November as consumers benefited from last year's interest rate cuts, declining inflation and a pension reform that allowed fund members to make partial withdrawals before retirement.
  • Wholesale trade sales decreased by 7.3% y/y and 3.1% m/m in November 2024.
  • The IMF’s real GDP growth forecasts were largely unchanged at 1.5% for 2025 and 1.6% for 2026. The IMF’s South Africa growth forecast are well below consensus and Absa expectations. Absa SA morning sheet 20.01.25 10h57

Interest Rate Outlook

  • The repurchase rate was cut with 25 basis points to 7.75% at the November Monetary Policy meeting in a unanimous decision.
  • The prime lending rate was lowered to 11.25%.
  • The next rate decision of the Monetary Policy Committee will be announced on 30 January 2025.

International News

  • US
    • Donald Trump was inaugurated as the 47th president of the U.S. on Monday.
    • U.S. jobless claims came in at 223,000 last week versus 217,000 for the previous week.
    • The U.S. leading indicator declined by 0.1% m/m in December, following an upwardly revised 0.4% m/m increase in November.
  • Euro zone
    • The Eurozone CPI for December (final estimate) came in at 2.4% y/y, matching the previous estimate, from 2.2% y/y in November.
    • ECB President Christine Lagarde commented at WEF yesterday, noting that the Eurozone must be “prepared” for possible trade tariffs from the U.S.
  • United Kingdom
    • UK retail sales undershot expectations in December, declining by 0.3% m/m, after increasing by a downwardly revised 0.1% m/m in November.
    • UK wage growth came in slightly lower-than-expected, at 5.6% y/y in the three months to November, from a 5.2% y/y in the three months to October.
    • The ILO unemployment rate increased to 4.4% m/m in November, from 4.3% m/m in October.
  • China
    • China's economy grew 5% last year, matching the government's target, however, many people complained of worsening living standards as Beijing struggled to transfer its industrial and export gains to consumers.
    • Industrial production rose 5.8% y/y in December, unchanged from the previous month.
  • Australia
    • The composite leading indicator fell 0.02% in December after rising 0.06% previously.
  • Japan
    • Japan's core machinery orders rose 3.4% m/m in November to beat analysts' forecast, signalling a recovery in capital expenditure.
    • The reading was stronger than a 0.4% decline estimated in a Reuters poll and marked a second consecutive month of increase.

Precious Metals

  • Gold rose to $2,764/oz on Wednesday supported by a weaker dollar and heightened demand for safe-haven assets. Market uncertainty surrounding President Trump's potential tariff impositions on China, Canada, Mexico and the EU drove gold prices higher.
  • "Spot prices are flirting with technically overbought conditions, which suggests that a slight technical pullback is due," said Exinity Group chief market analyst Han Tan. However, Tan added, "Gold is set to take further strides towards the psychological $3,000-mark if President Trump's policies in turn boost demand for inflation hedges and safe havens."

Base Metals

  • 3m copper fell $9,142/t on Thursday amid uncertainty around U.S. President Donald Trump's policy plans.

Oil

  • Brent fell to $78.60/bbl on Thursday morning, extending losses amid uncertainty over how U.S. President Donald Trump's proposed tariffs and energy policies would impact global economic growth and energy demand.
  • U.S. crude stocks rose by 958,000 barrels in the week ended Jan. 17, according to sources citing American Petroleum Institute figures on Wednesday.