SOUTH AFRICA: ANC Seeking Support for Budget as Fiscal Framework Vote Nears
Mar-26 12:55
Local press reported over the weekend that the African National Congress (ANC) reached out to ActionSA, Economic Freedom Fighters (EFF) and uMkhonto weSizwe (MK) to seek their support for the Budget, but it emerged this morning that ActionSA told the ANC that it would not be providing its support, increasing pressure on President Cyril Ramaphosa's party to find the required votes elsewhere. The ANC have since turned their attention to gaining the support of Build One South Africa (BOSA), IOL reported.
- In order for the fiscal framework to be adopted by parliament, a majority of the 400 MPs must support it (so a majority would be 201 votes would be needed if all MPs are present). The ANC has 159 seats, the DA 87, MK 58, EFF 39, ActionSA 6 and BOSA 2. Excluding the DA, the GNU hold 200 seats in the National Congress, meaning it would only require support of one other smaller party – assuming the rest of the GNU all vote in favour.
- However, BusinessDay note that seeking outside support would considerably weaken the coalition, and risks relegating the GNU to name only. ActionSA told the ANC that either the votes to approve this budget must come from the parties within the GNU, or a new government capable of passing a budget must be constituted.
- Compromises over the budget with the DA may still be reached, though the party has not softened its hardline opposition to the proposed VAT increase. Bloomberg reported last week that the ANC and DA were holding a series of talks to resolve the deadlock. The DA is said to have requested concessions, including the privatisation of ports and rail systems, expenditure re-prioritisation and tax relief for low-income earners in exchange for its support for the spending plan.
- Note that the budget will be considered by lawmakers in three stages, the first of which is a vote on the Fiscal Framework and Revenue Proposals - which must be adopted by April 3. Lawmakers have the power to amend the budget, but according to parliamentary law, any changes cannot exceed the revenue or spending estimates set out in the budget. The VAT hike is due to take effect on May 1 regardless of the decision on the fiscal framework.
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EUROPEAN INFLATION: Services Inflation Pressures Remain Elevated
Feb-24 12:50
Eurozone services prices fell 0.14% M/M, a touch below January 2024’s -0.09% reading, but still above the 1997-2024 average of -0.33%. Excluding the volatile package holidays and airfares subcomponents, we estimate services inflation at 3.88% Y/Y (vs 3.76% prior). As such, services inflation pressures remain elevated, and will be a key focus of the February flash inflation round which begins on Thursday. Last week, ECB Executive Board member Schnabel said she expects services inflation to start decelerating from February.
- Several services components tend to see start-of-year price increases in January (the so-called January effect). Looking in detail at these items, it was a bit of a mixed bag:
- Insurance prices, which have been highlighted as important to watch by ECB officials in recent weeks, rose 2.15% M/M, below last year’s 4.11%. This helped annual insurance inflation ease to 8.04% Y/Y (vs 10.12% prior).
- Education inflation also eased a touch to 3.97% Y/Y (vs 4.09% prior).
- However, health services inflation accelerated to 3.41% Y/Y (vs 3.18% prior), particularly driven by hospital services. Postal services also accelerated to 6.84% Y/Y (vs 4.53% prior), though this component has only a small weight in the basket overall.
- Elsewhere, restaurant and hotel inflation (which generally sees a negative monthly reading in January) decelerated to 4.17% Y/Y (vs 4.56% prior), driven largely by catering services.
- Recreation and culture inflation accelerated to 2.80% Y/Y (vs 2.47% prior), but this was solely due to the volatile package holidays component (8.77% Y/Y vs 7.80% prior).
- Finally, transport services inflation decelerated to 3.96% Y/Y (vs 4.25% prior), with prices falling 5.07% on a monthly basis. This was largely driven by the volatile airfares component (4.86% Y/Y vs 7.65% prior).
- On a seasonally adjusted basis using ECB data, Eurozone services inflation rose 0.30% M/M in January, a 7bp downward revision from the flash release. Services inflation momentum was 2.51% 3m/3m, slightly above the 2.45% flash release but still below December’s 2.71%.
BOE: Dhingra reappointed for further 3 years on the MPC
Feb-24 12:13
- Dr Swati Dhingra has seen her term as an external MPC member extended by the standard 3 years to 8 August 2028. This was generally expected (most external members do renew their terms) but it's never certain until the confirmation. Her first term had been due to end in August this year. External MPC members can serve two 3-year terms.
- Given that she is one of (if not) the most dovish MPC members, it reduces the tail risk that she would be replaced by a more hawkish member and shift the balance of the MPC through H2-25.
US TSYS: Scaling Back Friday Highs, Lat Week PCE, GDP Data Focus
Feb-24 12:09
- Treasuries are trading moderately weaker, low end of narrow range as rates scale back a small portion of Friday's risk-off & data-driven rally.
- Treasury March'25 10Y futures are currently -5.5 at 109-16.5 (109-16L/109-21H), inside technical levels: initial resistance above at 109-24/110-00 (High Feb 21 / 7 and the bull trigger), support well below at 108-21.5 (Low Feb 19). 10Y yield +.0058 at 4.4371%, curves flatter: 2s10s -1.134 at 21.770, 5s30s -.378 at 40.051.
- Heavier volume despite Japan out on extended holiday weekend, ongoing quarterly futures roll from Mar'25 to Jun'25 (June takes lead this Friday), helps push TYH5 to 420k so far.
- Limited data today with regional Fed reporting (prior, est): Chicago Fed Nat Activity Index (0.15, -0.05) at 0830ET, Dallas Fed Mfg Activity (14.1, 6.4) at 1030ET. No scheduled Fed speakers.
- The upcoming US economic calendar is backloaded, with the second release for Q4 national accounts on Thursday before the January PCE report on Friday. Real GDP growth is seen confirming what was at the time a softer than expected 2.3% annualized in Q4, whilst there will also be a first estimate for real GDI growth after 2.1% in Q3.
- US Treasury auctions resume $76B 13W & $68B 26W bill auctions at 1130ET, $69B 2Y Note auction (91282CMP3) at 1300ET.
- Cross asset update: Crude mildly higher (WTI +.08 at 70.48; Gold climbing 12.72 at 2948.75; Bbg US$ index little lower at 1285.86 (-.037).
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