Yesterday’s budget speech was generally well received by economists and market commentators.
The Finance Minister maintained a commitment to fiscal consolidation, and the use of gold and foreign exchange reserves to reduce debt was taken as a positive. But how did actual market prices react?
Below, we chart the R2032 bond yield, the Rand dollar exchange rate, and the performance of the JSE Banks and JSE General Retailers Indices over the four hours from midday until 16h00. The 14h00 start time of the budget speech is shown on each chart.
Source: Bloomberg
The positive reaction from both the currency and bond yields is clearly visible, although some of the initial reaction was reversed.
Over our measurement period, the Rand strengthened by about 0.45%, while the R2032 yield fell by about 4 bps. So, a directionally positive move, but of a rather muted magnitude.
Meanwhile, domestic equities were largely unaffected; the bank index seemed to react positively to the falling bond yields initially but quickly reversed that move.
Over the two-hour period we measured, the bank index was down 22 basis points and general retailers down 18 basis points, so there was no real move to speak of.
It is difficult to draw many conclusions based on market moves over a two-hour period, but the market reaction to the budget speech supports the view that while the currency and bond yields remain sensitive to the Treasury’s progress on fiscal consolidation and the future trajectory of SA’s debt-to-GDP ratio, domestic equities will need to see a significant improvement in growth prospects to sustain a meaningful rating.
Our Market Snippets aim to provide concise insight into our investment research process. Each week, we highlight one chart that showcases our research, motivates our current positioning, or simply presents something interesting we’ve discovered in global financial markets.
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