In the loop 20 February 2025

In the loop

Shireen Darmalingam

What you should know this morning:

The rand is stronger this morning, at R18.50/$, after closing weaker yesterday (R18.56/$*).
EM currencies were mixed yesterday; the RUB (+3.3%), PHP (+0.1%) and MYR (+0.1%) were the biggest gainers; the PLN (-1.0%), HUF (-1.0%) and MXN (-0.9%) were the biggest losers.
Asian equity markets the Nikkei, Hang Seng and Shanghai Composite are down.

Central bank watch: the Central Bank Indonesia kept its benchmark interest rate at 5.75% yesterday.
The Central Bank of Nigeria will keep rates unchanged today, at 27.5%.

UK confidence among UK households slipped to a new low as consumers brace for higher prices.
The British Retail Consortium’s (BRC) sentiment monitor came in at -37 in January.
Half of the respondents expect the economy to worsen over the next three months, while just one in eight expect a pickup.
Businesses warned that hiring could take a knock from rising payroll taxes.

The meeting minutes of the Fed’s January FOMC meeting indicated that policy uncertainty and upside inflation risks might keep the Fed on hold in the coming months.
The minutes revealed that policymakers debated whether interest rates are significantly above the neutral rate.
A few policymakers suggested that rates might not be far above it.
The committee considered the inflation consequences of trade and immigration policy at the meeting.
The minutes showed that the Fed believes that President Trump's policies might "hinder the disinflation process".
It was noted that business indicated that firms would attempt to pass on higher input costs arising from potential tariffs on to consumers.
The minutes showed the Fed’s readiness to hold rates steady amid stubborn inflation and economic policy uncertainty.

Fed Vice Chair Philip Jefferson commented yesterday that a strong economy allows policymakers to take their time before considering any additional interest rate cuts.
Jefferson added that healthy household balance sheets have supported strong consumer spending.
However, he said that lower income households are feeling “stretched.”.
Jefferson noted that while the 100 bps worth of rate cuts since last year have brought the stance of monetary policy closer to a neutral setting, monetary policy remains restrictive.

The US leading index for January is due out today and likely declined by 0.1% m/m, the same as in December.

Locally, Finance Minister Enoch Godongwana’s postponed Budget 2025 reaffirmed government’s commitment to raise living standards and improve long-term economic prospects.
Government indicated that it will prioritise infrastructure investment, continue to implement economic reforms and increase spending to address key service delivery priorities.
The Budget Review reflected an increased emphasis on infrastructure spending (from the fiscus as well as through the budget facility for infrastructure, which also crowds in other funding sources) to boost both economic growth and employment.
We were encouraged by the commitment that government displayed to fiscal consolidation in this budget.
The crux was that a 2 percentage point VAT hike would be used to increase spending on grants, wages and infrastructure.
However, the 2% VAT hike is unpalatable to some of the Government of National Unity (GNU) partners (and possibly some ANC members too) as part of the fiscal package.
The budget proposed above-inflation increases to social grants, and an expansion of the essential food items that are VAT zero-rated.
There were also no changes to the fuel levy to temper the impact of the VAT increase on the poor.

Brent crude oil is currently at $75.75/bbl; ($76.04/bbl*).
Gold is at $2944/oz ($2931/oz*).
SA CDS 197bps*, Brazil 166bps* and Turkey 247bps*.
Yields: US 10yr at 4.53%*, German bund at 2.55%*, SA 10-year generic at 10.57%*, SA’s R2035 at 10.58%*.

* Denotes yesterday’s close.

Key events and data:

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