Moody’s has cautioned the ANC about the potential challenges it may encounter within the Government of National Unity (GNU) if it seeks budget support beyond the coalition. With the deadline to finalise the budget rapidly approaching, time is of the essence. Parliament has a two-month window, starting March 12, to vote on the budget proposal. Currently, its passage appears uncertain, placing the ANC in a challenging position as it works to persuade coalition partners of the benefits of increasing the VAT rate. This proposal is likely to face significant resistance, given its frequent characterisation as a regressive tax. Meanwhile, as these political discussions continue behind closed doors, investors are understandably assessing the broader implications of these developments.
As these developments unfold behind the scenes, key economic data continues to emerge. Today, the latest PPI figures will be released. In January, PPI inflation for final manufactured goods rose to 1.1%, up from 0.7% in December, driven primarily by elevated food and fuel costs. Despite three consecutive months of rising PPI figures through January, producer inflation remains subdued and is expected to stay low in February, with only a modest uptick anticipated due to higher fuel prices. This gradual increase in producer prices is a positive signal, as it suggests limited upward pressure on CPI inflation. The inflation outlook remains relatively stable and is likely to persist as such, supported by the ZAR’s resilience against broader market volatility.
ZAR Markets
President Trump’s decision to impose 25% tariffs on vehicle and vehicle parts imports has exerted downward pressure on the USD, which has weakened during Asian trade. As the USD index declined, the ZAR and other currencies gained some relief. The ZAR, in line with the broader trend among global currencies, mounted a recovery against the USD, trading closer to 18.2000 this morning. Market expectations suggest that the USD-ZAR exchange rate could see further declines today as the full implications of the tariffs become clearer. While no official responses from US trading partners have emerged thus far, potential retaliatory measures could amplify the USD’s downward trajectory.
Global FX Markets
The euro fell to a three-week low of $1.0733 earlier in the Asian session while the yen held steady above USD/JPY150.00 following U.S. President Donald Trump’s announcement of a 25% tariff on imported cars and light trucks effective next week. The move, seen as escalating a potential global trade war, has dampened risk sentiment, with concerns it could slow U.S. growth and stoke inflation, though narrower-than-expected tariffs provided some relief. The dollar index remained near a three-week high at 104.61. The U.S., which imported $474 billion in automotive products in 2024—including $220 billion in passenger cars—primarily from allies like Mexico, Japan, South Korea, Canada, and Germany, spared USMCA-compliant auto parts for now. That said, the volatility is undoubtedly going to continue as the markets unpack the current tariff structures as well as the potential for more tariffs in the coming months as Trump aims to reshape the global trade order.