ZAR: Rand Extends Gains, Refreshes Three-Month Highs
USD/ZAR remains heavy as the greenback continues to haemorrhage strength (BBDXY -0.3%). The pair last deals at 18.0638, almost 700 pips shy of neutral levels, after moving through the 100- and 200-DMAs yesterday. A break below the round figure of 18.0 would bring into play the nearby 76.4% retracement of the upleg between Dec 12 - Jan 13 at 17.9992. On the flip side, bulls look for a recovery towards Feb 28 high of 18.7246.
- Coalition parties continue to wrestle over the shape of the delayed 2025 National Budget, with the Democratic Alliance (DA) and smaller parties reportedly still opposed to any VAT hikes. The government's guidance remains that the March 12 date for budget delivery is "set in stone," which puts the Finance Minister under pressure to come up with a digestible compromise. The Cabinet is expected to review the final draft on Monday, March 10.
- SAGB yield curve runs a tad steeper as we type, with 5-year and 10-year breakeven inflation rates last seen at 4.60% and 5.61% respectively.
- The aggregate BBG Commodity Index has edged lower by 0.2%, with the precious metals subindex little changed on the session.
- South Africa's net reserves stood at $61.73bn in February versus $61.33bn in January and $61.19bn expected.
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MNI: ITALY JAN SRVCS PMI 50.4 (FCAST 50.4); DEC 50.7
- MNI: ITALY JAN SRVCS PMI 50.4 (FCAST 50.4); DEC 50.7
GILTS: Citi Dig Into '24 Gilt Demand, Offshore Took Greatest Share Again
Citi note that “data out at the end of last week completes the picture of who bought all the gilts in ‘24. 45% of ’24 net gilt supply was absorbed overseas, 34% was taken by private domestic investors and 22% was taken by domestic banks.”
- They note that “this was the fifth time in the last six years that overseas investors have taken the greatest share (‘23 the exception), largely thanks to a strong pick-up in demand in the last quarter, a period in which cable depreciated by over 6% and gilts underperformed sharply vs. Bunds.”
- Elsewhere, Citi observe that “net buying by UK banks also had a late surge to the fastest 3-month pace on record, perhaps responding to cheaper ASW levels. In contrast, non-bank domestic demand fell away in late ‘24 to the slowest 3-month pace since early ‘22, despite higher outright yields, perhaps put off by the domestic uncertainty created by the Budget.”
- They conclude with “this highlights the efficiency of the gilt market in offering RV to entice one investor group whenever another one may be stepping back.”
SPAIN DATA: Composite PMI Still Comfortably Expansionary Despite Services Miss
The Spanish services PMI was a little weaker-than-expected at 54.9 (vs 56.8 cons, 57.3 prior). Taken alongside a lower-than-expected manufacturing PMI on Monday, the composite index ticked down to 54.0 (vs 55.9 cons, 56.8 prior). The composite index has nonetheless been in expansionary territory since November 2023, notably outperforming other major Eurozone economies.
We highlight that input price increases were passed through to output charges in January. A similar dynamic was also seen in the manufacturing PMI.
Key notes from the release:
- “The rate of growth in new business in January was rapid, rising to its highest level since April 2023. Panellists noted that demand for their services was strong, and that commercial activities had helped to support new business gains”…. “Latest data did however suggest that growth was centred on domestic markets”
- “In response to higher overall workloads, service providers chose to take on additional staff at a rapid and accelerated pace”.
- “Panellists also noted an upturn in typical labour expenses during January”… “Suppliers were also reported to have increased their prices”… “firms increased their output charges in response to higher operating expenses”.
