Local data published yesterday showed manufacturing production contracted by -0.8% y/y in March, albeit improving from February’s reading of -3.2% y/y. March’s outcome missed consensus estimates of +0.8% y/y. The largest negative contributors to March’s reading were ‘petroleum & chemical products’, declining by -2.5% y/y (-5.4% y/y in February) and ‘electrical machinery’, which declined by -12.2% y/y (-9.0% y/y). Other major categories, such as ‘food & beverages’ declined by -0.4% y/y, from -0.2% y/y in February, whilst ‘basic iron & steel’ saw a minor improvement of +0.7% y/y from -0.4% y/y. Positively, the ‘motor vehicle, parts & accessories’ category grew by +0.5% y/y, after February’s contraction of -14.5% y/y. March usually sees a seasonal improvement in vehicle production, however, the long-term trend suggests that this industry is still struggling. Looking ahead, South Africa’s trend of deindustrialisation continues. April’s reading of Absa’s Purchasing Manager’s Index (PMI) remained below the 50-point mark (44.7 pts), suggesting the outlook for production remains bleak. Structural barriers such as ageing infrastructure, logistical bottlenecks and no change in policymaking under the GNU continue to deter investment in the sector.
Looking ahead, the spotlight is now on US-Sino trade talks that will take place in Switzerland this weekend. The Trump administration aims to reduce tariffs below 60% to de-escalate tensions, with potential cuts implementable next week. Led by US Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng, the exploratory talks will address grievances, China’s rare earth export restrictions, and fentanyl ingredient exports. Despite optimism, high tariffs (currently 145% on Chinese imports) and economic pain persist, with a full resolution unlikely soon. Both sides remain cautious, viewing the talks as a small step in a long process.
ZAR Markets
The USD strengthened overnight, bolstered by rising US Treasury yields, resilient US labour market data, and optimism around US-UK and US-China trade relations. This has revived the US exceptionalism trade, mildly pressuring the ZAR. Despite this, the ZAR has outperformed commodity peers like the AUD and NZD this week, supported by optimism over South Africa’s GNU stability and an upcoming constructive budget. While the ZAR may soften today, potentially ending flat, its undervaluation could ease if a confidence-boosting budget materialises. Techs suggest support at the 200-day moving average (18.1800) and resistance around 18.4500, with stochastics indicating oversold conditions.
Global FX Markets
The U.S. dollar strengthened against major currencies, driven by optimism over a U.S.-UK trade deal and anticipation for U.S.-China trade talks in Switzerland. The deal, which modestly expands agricultural access and lowers U.S. duties on British cars, fuelled hopes for tariff reductions with China, potentially easing global trade tensions. The euro fell 0.6% to $1.1217, and the yen weakened 0.7%, hitting a one-month low of 146.18 before stabilizing at 145.78. Sterling dropped to a three-week low of $1.3220 after the limited scope of the U.S.-UK deal became clear. Bitcoin surged past $100,000, reflecting heightened risk appetite. Federal Reserve Chair Jerome Powell’s cautious remarks reduced expectations for imminent U.S. rate cuts, with June cut odds dropping to 17% from 55%. The Australian and New Zealand dollars fell 0.7% and 0.4%, respectively. In Asia, the Taiwan dollar surged over 6%, while the Singapore dollar neared decade highs, and the Hong Kong dollar eased after intervention. Central banks, including the Bank of England, which cut rates, and the U.S., Norway, and Sweden, which held steady, aligned with expectations. Markets remain focused on U.S.-China negotiations, with Trump suggesting tariffs on Chinese imports could drop significantly, though the White House dismissed such reports as speculative.