March saw improvements in US PMI data which helped boost overall business sentiment, while the US economy continues to show steady momentum. Locally, the GNU comes under threat over the budget, putting pressure on the local bond market.
International Market Developments
The US economy expanded an annualized 2.4% in Q4 2024, slightly higher than 2.3% in the previous estimates, primarily reflecting a downward revision to imports. Exports fell slightly less (-0.2% vs -0.5%) and imports declined more than initially anticipated (-1.9% vs -1.2%), leaving the contribution from net trade positive at 0.26 pp (vs 0.12 pp).
The core PCE price index, the Federal Reserve’s preferred gauge of underlying inflation in the US economy rose by 2.8% annually in February 2025, up from 2.7% and above expectations of 2.7%.
The year-ahead inflation expectations in the United States, as compiled by the University of Michigan, rose for the fourth straight month to 5% in March 2025, the steepest since October 2022, slightly above the preliminary reading of 4.9%, according to final figures. In the meantime, the five-year outlook was also revised up to 4.1% in March, the highest since February 1993, compared to the preliminary reading of 3.9% and above February’s 3.5%. Inflation expectations continue to rise as investors and economists grapple with the implications of President Trump’s trade tariff policy.
Looking ahead, the spotlight is on next Friday’s US nonfarm payrolls and unemployment data. The labour market has remained resilient. While the US Federal Reserve (Fed) is wary of persistent inflation, it also remains focused on employment, as reflected in its slightly higher unemployment rate forecast in March.
Local Market Developments
Last week, political uncertainty stemming from a breakdown in ANC-DA budget negotiations triggered a sharp selloff on Friday. A top DA negotiator said the party had told the ANC that it would effectively end the GNU if it passed the budget without the DA’s support. SAGBs closed 1.5 – 4 basis points weaker, and the Rand weakened 0.72% against the Dollar. Market flow analysis revealed local investors remained largely sidelined, while offshore sellers dominated post-headlines.
Looking ahead, the key domestic focus will be the budget vote this week. Reports suggest parties have yet to agree on the proposal, particularly the contentious VAT increase. We expect caution in SAGB trading as investors continue watching headlines for more on the budget negotiations.