The SARB’s leading indicator ended a three-month rise by falling to 112.8 in December from November’s 114.7—its highest since late 2022. The decline was driven by weaker growth in new passenger vehicle sales and fewer residential building plan approvals, offsetting the boost from rising job advertisements. Despite the drop, the indicator rose 1.6% y/y, its ninth consecutive annual gain, reflecting improving business conditions supported by lower rates, subdued inflation, a stronger ZAR (REER), and rising confidence in the GNU. Consumer confidence has also benefited from R40.0bn in retirement payouts and 75bp of SARB rate cuts. However, risks remain, including the return of load-shedding and political uncertainty after the delayed 2025 budget. Looking ahead, the indicator has room to rise further in 2025. A strong rise in total domestic vehicle sales in January will likely support the next leading indicator print. Markets expect one more 25bp SARB rate cut by year-end, potentially boosting consumer credit and spending. However, structural inefficiencies persist, and meaningful economic growth will depend on improved policymaking. While monetary easing provides support, its full impact will take time to materialise amid slow structural reforms.

Today, the local card will be headlined by January CPI data, which was postponed from last week due to additional checks and verifications needed to ensure that changes to the inflation basket and weights (announced late in January) were implemented correctly. At face value, this delay raises concerns about Stats SA’s ability to deliver reliable data, especially in light of ongoing budget cuts. However, the organisation’s transparency does offer some reassurance that checks and balances are in place to help ensure data accuracy. The (delayed) headline print for January is expected to accelerate to 3.2% y/y from 3.0% y/y, with rising fuel prices likely driving the increase. While inflation is now rebounding, it remains moderate and will likely not impact consumer spending significantly. Looking ahead, further upticks in CPI are to be expected as fuel prices are set to rise further.

ZAR Markets

While there has not been much change in the recent rangebound trend of the USD-ZAR, it is worth noting that the dollar has come under pressure more broadly. Year-to-date, the trade-weighted USD index (DXY) has declined 1.80%, tracking a similar decline in US Treasury yields. Given the uncertainty surrounding US President Trump’s policies, investors remain hesitant to establish new long USD positions. While plans to cut state expenditures and taxes are viewed positively, yesterday’s extremely weak consumer confidence data served as a reality check for the administration. Households are increasingly concerned about the combined impact of weaker GDP growth and rising inflation, adding to market apprehension. The ZAR has yet to capitalise fully on this broader USD decline, and will likely remain rangebound until the budget has passed in March. The hope is that authorities find a solution to balancing the budget, including but not limited to reducing wasteful expenditure and greater inclusion of the private sector to help rid the fiscus of the burden of bailing out underperforming SOEs.

Global FX Markets

The U.S. dollar is at risk of further decline as concerns about stagflation grow. The economy is slowing, and policy uncertainties may lead the Federal Reserve to keep interest rates steady for longer. Consumer confidence has dropped to an eight-month low, raising concerns about reduced spending, which drives 70% of U.S. GDP. Factors such as policy shifts, government worker layoffs, and rising inflation expectations due to trade tariffs are weakening consumer morale. As stagflation risks increase, U.S. economic dominance may wane, reducing demand for the dollar as a safe-haven asset. The euro is currently holding above EUR/USD1.0500 as we enter the start of the Wednesday EU trading session. The range has been tight in the Asian session with investors awaiting key data while month end rebalancing is keeping both the topside and downside in check for now. Sterling is consolidating this morning after making a fresh push towards GBP/USD1.2700 which once again proved difficult to breach. Higher US Treasury yields this morning are making it more difficult for pound bulls to gain traction. Investors are likely to adopt a wait and see approach as the UK market opens seeking further direction from local data inputs. The USD/JPY is trading heavy this morning following yesterday’s busy trading session. Options expiries at USD/JPY149.00 will exert some gravitational pull, but we have yet to clear this support level which has been a tough nut to crack. Selling the upticks is still the favoured trade for now.