ZAR: Rand Tad Softer, Market Assesses Budget Developments & Rate Outlook
Apr-24 09:22
Spot USD/ZAR has edged higher despite the National Treasury's late-night announcement yesterday that the planned VAT hike would be scrapped. However, substantial uncertainty remains around alternative measures to curb fiscal deficit as well as the future of the Government of National Unity (GNU).
- The pair last changes hands at 18.6685, a tad higher on the session. A clearance of Apr 14 high of 19.1531 would bring the all-time high of 19.9328 into play. Conversely, a dip through the 50-/100-DMAs (18.5636/18.5449) would open up trendline support drawn off Sep 30, 2024 low and intersecting at 18.2888.
- Signals coming from the National Treasury suggest that the focus will now turn to spending cuts as scrapping the VAT increase is estimated to leave a ZAR75bn hole in the 2025 budget. Meanwhile, DA Federal Chair Zille said that the GNU is operating in a 'very low-trust environment' and the ANC and DA will be meeting to discuss the future of their coalition government.
- Ukrainian President Zelensky cut short his ongoing trip to South Africa and said he would return home "immediately" after his talks with President Cyril Ramaphosa following a massive Russian strike on Kyiv.
- Separately, Ramaphosa spoke with US President Trump. The leaders discussed the Ukraine situation the agreed to meet soon to address issues regarding bilateral relations.
- SAGBs firmed from the off, before trimming some gains later on. South Africa's 5-year and 10-year breakeven inflation rates have dipped to 4.52% and 5.69% respectively.
- The composite BBG Commodity Index has added 0.3%; the precious metals subindex is 1.2% better off. Gold trades ~$50/oz. higher on the day.
- South Africa will report March PPI data shortly. This comes after the release of below-forecast CPI data yesterday, which fuelled bets on a SARB rate cut in May.
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BUNDS: Some momentum selling is going through
Mar-25 09:21
- Some momentum selling in Bund as it breaks through the figure, sold in 7k, likely some short term long bailing out.
- The contract has been selling off since the Cash Open, initially led by the US Treasuries, but the German supply (Bobl), EU Issuance as well as the German IFO beat have also weighted on the on the contract.
- Supports are unchanged, at 127.88, followed by 127.45, so far printed a 127.89 low.
GERMAN AUCTION PREVIEW: 2.40% Apr-30 Bobl
Mar-25 09:20
This morning, Germany will hold its fourth regular (non-green) Bobl auction of the year. On offer will be E4.5bln of the 2.40% Apr-30 Bobl.
- The size is in line with the E4.5bln seen at the last re-open of that Bobl on March 4.
- That last re-open was a rather weak auction, with the lowest bid-to-cover since June 2023 (1.69x) and the lowest bid-to-offer (1.32x) since April 2023 in the Bobl segment. At least the low price came in above the secondary markets mid-price at that auction. Note that March 4 was the day that later saw the major German fiscal announcement.
- Earlier auctions in the German Bobl segment have passed smoothly, with solid bid-to-covers (in a 1.73x to 2.75x range since January 2024), bid-to-offers (1.45x to 2.29x range since then) and the low prices above the secondary market mid-prices throughout 2024.
- Supply is in focus generally this morning, with a syndication from France and auctions from the Netherlands and the UK.
- Bobl positioning currently appears short - see our latest Europe Pi positioning indicator (published yesterday) here.
- The next German auction will be next tomorrow's E1.5bln of the 2.60% May-41 Bund (ISIN: DE000BU2F009) and E500mln of the 2.50% Aug-46 Bund (ISIN: DE0001102341), while the 2.40% Apr-30 Bobl will be reopened next on April 15.
- Timing: Results will be available shortly after the bidding window closes at 10:30GMT / 11:30CET.
GERMAN DATA: Broad-Based IFO March Uptick
Mar-25 09:19
Germany's IFO Business Climate Index rose in March for the 3rd consecutive month, to 86.7 (85.3 prior, revised from 85.2) for oming in exactly in line with expectations. The print suggests a more broad-based increase in sentiment than yesterday's PMI release, which saw manufacturing rebounding but services screening dovish. IFO concludes that "the German economy is hoping for improvement" - nevertheless, the overall print remains in contractionary territory.
- Expectations were the upside driver vs February, at 87.7 (vs 87.3 cons; 85.6 prior, revised from 85.4) - some uptick was expected amid expectations for higher fiscal spending following the related announcement by the likely incoming CDU/CSU/SPD coalition. The current assessment reading meanwhile saw a more modest improvement, to 85.7 (vs 85.5 cons; 85.0 prior).
- Across sectors, manufacturing saw a material uptick in expectations albeit from very low levels. New orders were slightly lower than before but the current assessment in manufacturing increased slightly overall. In services, "there was renewed hope, particularly among architecture and engineering firms", with a notably stronger expectations print in the sector. Trade also saw some uptick in both expectations and the current assessment. Lack of orders remains the biggest challenge for the construction sector.
