ZAR: Rand On Back Foot Ahead Of Contentious Budget Speech
The rand has been on the defensive this morning, with market participants awaiting the resolution of the ongoing turmoil around the 2025 National Budget, which will be delivered in parliament at 12:00GMT/14:00SAST. When this is being typed, USD/ZAR trades at 18.3621, around 1,500 pips higher on the session. The key bullish target is provided by Feb 28 high of 18.7246, while bears look for sales towards 17.9992, the 76.4% retracement of the upleg between Dec 12 - Jan 13. USD/ZAR overnight implied volatility has crept higher ahead of the Budget Speech.
- Latest reports surrounding budget talks suggest that Finance Minister Godongwana is planning to stick with a VAT hike despite the lack of any deal with coalition partners, who may hold off on supporting the spending plan. An IOL piece noted that Godongwana is looking to announce a 0.5pp VAT hike but the DA is still planning to vote against the budget as long as it assumes any increase in VAT. Minister in the Presidency Khumbudzo Ntshavheni confirmed this morning that the delayed Budget Speech is still on today, after signalling that there would be scope for amendments in the process of the subsequent discussion.
- SAGB yields sit a tad higher across the curve, with South Africa's 5-year and 10-year breakeven inflation rates last seen at 4.63% and 5.57% respectively.
- The composite BBG Commodity Index is barely changed; the precious metals subindex has added 0.4%.
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US-EU: Commission-No Justificaton For Tariffs, Will React To Protect Interests
The European Commission has released a short statement following the announcement by US President Donald Trump of 25% tariffs on all aluminium and steel imports into the US. The Commission says that it has not yet received and official notification regarding the imposition of tariffs, adding that it will not respond to 'broad announcements' without additional detail. Nevertheless, the statement says: "The EU sees no justification for the imposition of tariffs on its exports. We will react to protect the interests of European businesses, workers and consumers from unjustified measures."
- Commission: "The imposition of tariffs would be unlawful and economically counterproductive, especially given the deeply integrated production chains the EU and US established through Transatlantic trade and investment."
- Commission: "Tariffs are essentially taxes. By imposing tariffs, the US would be taxing its own citizens, raising costs for business, and fuelling inflation. Moreover, tariffs heighten economic uncertainty and disrupt the efficiency and integration of global markets."
The EU and its member states will be bracing for further announcements on tariffs that Trump has trailed on 'Tuesday or Wednesday'. As the FT reported last week, the EU has the option of using its 'anti-coercion instrument', the so-called 'bazooka' to target US firms. This risks bringing services into the burgeoning trade spat, rather than just goods - a risky move some EU countries will be reluctant to back.
JPY: AUDJPY is testing Friday's high
The Yen is printing further broader base lows, the Scandis are still leading against the Yen in G10, but AUDJPY is now also breaking above Friday's high, although initial resistance is seen at 96.02, now trading at 95.65.
BOE: Mann due to speak tomorrow at 8:45GMT: A dove now, but for how long? (2/2)
- However, it was also qualified that Mann thought that the 50bp cut was appropriate at “this meeting” – indicating that she may not repeat a vote for the same magnitude of cut at future meetings. The full part of this passage in the Minutes noted that “a more activist approach at this meeting would give a clearer signal of financial conditions appropriate for the United Kingdom.”
- The wider MPC updated its estimates for the neutral rate (model-based estimates suggest 2.25-3.75%) but it is not clear exactly where Mann believes the neutral rate will be and whether she fully endorses this range. If she does, after last week's cut we are only 75bp away from rates potentially not being restrictive any more.
- She is due to deliver a speech entitled “Economic Prospects” at Leeds Beckett University tomorrow at 8:45GMT and we will be watching this closely for any hints surrounding her voting intentions past the next couple of meetings.
- There is a link to register for virtual tickets for the speech here.
- For more on our interpretation of last week's BOE meeting, see our BOE review here.
