SOUTH AFRICA: Analysts Play Down Risks From Budget Delay
Feb-20 09:08
Analysts took yesterday's postponement of the 2025 Budget Speech in stride, playing down the potential for any imminent collapse of the Government of National Unity (GNU). As a reminder, the Budget Speech was called off at the eleventh hour as coalition parties failed to agree on a 2pp VAT hike proposed by Finance Minister Enoch Godongwana.
- The Bureau for Economic Research wrote that their "initial view is that the postponement will create a wobble in the Government of National Unity (GNU). However, it shows that the smaller political parties are able to exercise leverage, which could be positive for reform in the longer run."
- Goldman Sachs "think all parties are committed to the fiscal consolidation plan but there are disagreements on implementation which somehow raise the risk to the stability of the Government of National Unity (GNU)." Although these considerations are warranted, in their view, they "still think that in the end the coalition will present a credible fiscal consolidation path and debt stabilization though the relative contribution from different expenditure and revenue items might be renegotiated."
- JP Morgan wrote that the delay adds some uncertainty to he outlook after the cabinet failed to reach consensus on a 2pp VAT hike, which is seen as particularly politically sensitive. Based on recent press statement, they now think that a 2pp VAT hike "is not the likely outcome in March." In their view, "the lack of buy-in for the tax hike was not a DA vs. ANC issue" as "several party leaders and ministers stressed that ANC ministers were the first ones to disagree with the VAT hike at the emergency cabinet meeting." They do not expect the GNU to collapse due to the budget. They "would not find it surprising if the eventual size of tax initiatives was closer to [their] originally envisaged ZAR20bn-ZAR30bn," as opposed to ZAR58bn, "complemented by expenditure reallocations."
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GILT SYNDICATION: 4.375% Jan-40 gilt: Books open
Jan-21 09:04
- Guidance: 4.25% Sep-39 gilt +4.00/+4.25bps
- Size: GBP Benchmark (MNI expect GBP5.0-6.5bln)
- Expected Settlement Date: 22-January-2025 (T+1)
- ISIN: GB00BQC82D08
- Joint Leads: DB (B&D / DM) / JPM / MS / Nomura / RBC CM
- Timing: Books open, today’s business
From market source
EGBS: Spreads To Bunds Marginally Wider
Jan-21 08:58
Trump’s apparent focus on imposing tariffs on Mexico & Canada in the coming weeks helps promote some modest EGB spread widening to Bunds today, although the major 10-Year cross-market differentials are within 1bp of yesterday’s closing level.
- Bund futures have pulled back from overnight highs, limiting the spread widening as the risk-off moves fade from extremes.
- 10-Year BTP/Bunds closed below 110bp, with cycle closing lows located at 106.4bp.
- Meanwhile, 10-Year OAT/Bunds last ~77.5bp, with French political and fiscal risks helping keep that spread above 75bp.
- Supply pressure is set to come via the French and Lithuanian syndications, with German green supply also scheduled.
USD: EUR and the Pound are testing their intraday lows
Jan-21 08:50
- The EUR and the Pound are falling back to where they fell Overnight post Trump's Tariffs headline, both EURUSD and Cable are back to their overnight intraday lows.
- Not Yet seeing any broader moves versus G10s at least.
- Small support in Cable comes at 1.2222, and a push all the way down to ~1.2186 would reverse Yesterday's WSJ story on Tariffs.
- EURUSD would need to drift to 1.0320 to reverse that move.
