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*Please note, due to Easter Weekend, there will not be a Weekly on 18 April. The next Weekly will be released on 25 April.
Tracey-Lee Solomon, Lisette IJssel de Schepper
It’s been quite the week. Tariffs and Trump took centre stage on the global front, with a seemingly Saudi-engineered oil price slump playing second fiddle. At home, there still is uncertainty about the future of the Government of National Unity (GNU) – or rather the DA’s participation in it – and we await the outcome of the urgent court case brought by the DA (and now joined by the EFF) to challenge the constitutionality of the approved VAT increase.
US President Donald Trump’s reciprocal tariffs kicked in on Wednesday morning (SA time). Stock markets dived lower, and the US bond market reeled. Despite a generally weaker dollar, the SA rand weakened to record low levels against the major currencies, with our local bond yield also moving steadily higher. A mere 13 hours later, Trump snapped his fingers and adjusted all the reciprocal tariffs for individual countries to the universal 10% for 90 days. Mexico and Canada are excluded from these tariffs. Another key exception is China, for which he ramped up the tariff to 125%. In turn, Beijing imposes an 84% tariff on US imports, and if the past few days are anything to go by, this could be ratcheted up to 125%, too. That said, the latest noises from China suggest the country is more open to negotiating than before, although it does not want to be bullied. Indeed, the European Union, which was planning a three-phase retaliatory strategy against the US, has now paused the implementation. Other exceptions include the 25% tariff on aluminium and steel exports into the US, as well as 25% on foreign cars. The latter is set to hurt SA, but although it disadvantages us to cars produced locally, all foreign cars face the same hurdle. On the positive side, the exception for some of SA’s key mineral and metal exports (most notably PGMs), seems to hold for now.
Markets initially breathed a sigh of relief, but then the realisation kicked in that, on balance, US tariffs are significantly higher than they were before Liberation Day. The current effective tariff rate is estimated to be about 25%, the highest in about a century and up from about 3% in two months. This needs to be paid by US importers, who are likely to pass on (some of) the cost to the consumer. It will bring in income for the US government, which may be given back to the consumer in the form of tax cuts over time, but for now, it puts the US consumer under pressure. While many global analysts have dropped their global recession call after last night’s announcement, US growth forecasts are still lower than they were a week or so ago, with inflation expected to be higher. We also need to remain mindful of the uncertainty that Trump brings to the White House – he can seemingly snap his fingers and change trade policy.
Looking ahead, he does not have to wait 90 days to make changes, and who knows what will be implemented in 90 days when the current pause ends. The erratic way of policymaking will surely weigh on sentiment throughout his presidency with all the negative spillovers (we know all too well in SA) that follow. Different measures of consumer confidence in the US are already moving down. However, some argue this was a master class in the art of the deal, with 75 countries reportedly already having reached out to the US to negotiate.
The tit-for-tat tariff exchange between the US and China, and Washington’s early week refusal to roll back any of the hefty levies announced last week sent equity markets into a tailspin. Investors were so desperate for good news that a (later proved-to-be) false post on X about a tariff pause caused a rally in the S&P 500, only for it to tumble again once the White House refuted it. By Tuesday's close, the S&P 500 had dropped 12% since Liberation Day, marking its sharpest four-day fall since the COVID-19 pandemic. Companies with manufacturing ties to China were hit hardest, with Apple shares down nearly 23%.
Markets rebounded sharply on Wednesday after the tariff pause was confirmed, triggering the S&P’s biggest one-day gain since 2008 and Apple’s best day since 1998. However, after initially starting on stronger footing, US stock markets again closed in the red on Thursday with the S&P500 down 3.5% on the day and the Nasdaq 4.2% lower. The JSE Alsi suffered steep losses until Wednesday, but regained the decline on Thursday to end the week flat.
The trade war’s fallout wasn’t limited to equities. Even traditional safe havens like the US dollar and Treasuries were rattled. The 10-year US Treasury yield surged past 4.5% on Wednesday in its biggest jump since 2008. Fears of a bond market spiral raised expectations of intervention from the US Federal Reserve Bank (Fed), drawing comparisons to the Bank of England’s (BoE) reaction during the UK’s Liz Truss-induced 2022 mini-budget crisis. Indeed, Trump admitted that the bond market played an important role in him essentially changing his mind on reciprocal tariffs. The 10-year yield retreated somewhat but was back just below 4.5% early this morning. The 30-year yield is creeping closer to 5% - up more than 50bps this week, the most since 2000. US futures, the dollar, and long-term bonds are being sold off in early Asia trade this morning, suggesting that another tough day awaits for US financial assets.
SA’s 10-year yield also eased from midweek highs but still ended the week 13bps up. Global tensions aside, local political drama added to investor unease. The ongoing budget dispute and the risk of a GNU-DA divorce further dampened sentiment. This was reflected in the CDS spread, which hit a 17-month high on Tuesday. Although it later moderated, the spread has risen by almost 60ps since January.
In currency markets, the US dollar lost 0.6% against the euro w-o-w-, booking steep losses early in the week. Unfortunately, the rand continued to struggle, losing 4.1% against the dollar, 4.7% against the euro, and 2.6% against the pound.
Commodities had a mixed week. The ever-reliable gold rebounded to gain 1.5% w-o-w, but energy and industrial metals plunged. Brent crude fell by 10.6% w-o-w, trading in an unusually wide range of $58 to $67/bbl. While part of this is due to concerns about demand, as mentioned last week, a larger than originally scheduled production increase by OPEC+ is set to cause a supply glut. Rather than step in, Saudi Arabia appeared to use the moment to reclaim market share from the US and reassert its position as OPEC+’s de-facto leader (amid dissent from over-producing OPEC members), cutting May oil prices for Asia to four-month lows and announcing 14 new oil and gas well discoveries. This strategy echoes 2014 when the Kingdom triggered a price collapse to squeeze out competitors. Still, it's unlikely to last long, given Saudi Arabia’s heavy fiscal dependence on oil revenue.
As one would expect, industrial metals slumped on growth concerns. PGMS moved lower, while iron ore dipped below $100/ton amid persistent worries about China’s economic outlook.
Locally, it is a quiet week on the data front. Stats SA will publish February mining production and internal trade sales figures. This week, Stats SA data showed that manufacturing output had ticked up slightly for the same month but remained down y-o-y. Mining had a tough start to Q1 with a 1.2% m-o-m drop. On the flipside, retail sales (out on Wednesday) started the year very strong, with a 1.2% m-o-m expansion translating into a 7% annual surge. It is unlikely this momentum was sustained in February.
On the local political front, we will monitor any reports from the major political parties about the GNU's future. It remains likely (although not inevitable) that the DA may leave the GNU, which would require other parties to join if the GNU wants to continue governing as a majority government. The outcome of the court case about the constitutionality of the VAT increase – which may come next week - could prove to be a pivotal moment in that regard.
Internationally, the calendar is busier. In the US, the preliminary April Michigan consumer sentiment and inflation expectations are due today, with another Consumer Inflation Expectations for March will be released on Monday. One-year ahead expectations have remained above 3% for four months, with the 3- and 5-year views also stuck at 3%. Fed Chair Jerome Powell has emphasised the importance of anchoring expectations near the 2% target. This is critical if the Fed hopes to cut rates, even amid signs of tariff-related economic strain. On Tuesday, US retail sales data will be in focus as investors watch for early signs of consumer weakness.
China will release 2025Q1 GDP and March retail sales on Wednesday. After 5% y-o-y growth in 2024, China has again set a target of “around 5%” for 2025—despite trade disruptions, it is likely to push hard to achieve this goal again. The Q1 data may benefit from strong export growth as US importers tried to frontload orders in the expectation of more tariffs being placed on Chinese goods later in the year.
In Europe, Germany’s April ZEW Economic sentiment index is due on Tuesday. In March, we saw an improvement thanks to fiscal stimulus plans. However, sentiment may have softened in April amid concerns over US auto tariffs. On a more positive note, the Christian Democrats (CDU) and Social Democrats (CSU) reached an agreement to form a coalition government. The confirmed coalition also boosts confidence in the execution of fiscal plans. CDU leader Friedrich Merz is expected to become the new German Chancellor in May.
In addition to favourable fiscal policy, monetary policy will likely support sentiment as well. The European Central Bank (ECB) is expected to cut its deposit rate by 25bps on Thursday. Eurozone (EZ) inflation nearing the ECB’s 2% target has allowed the bank to cut interest rates twice so far this year. March EZ inflation is expected to be just above 2% when it is released on Wednesday. Meanwhile, UK inflation, also due on Wednesday, is expected to have ticked up in March as price increases remain stickier in the UK relative to the EZ.
Despite the ongoing GNU ructions, the reform agenda has ticked forward meaningfully in recent weeks.
Operation Vulindela 2.0 has been approved by Cabinet. Outstanding work will continue on Phase 1 in the areas of energy, water, visa, and logistics Reforms, with new focus areas of local government, spatial inequality and digital transformation. Additional areas that would be considered are re-industrialisation and localisation, infrastructure and oil and gas.
The White Paper on Local Government Reform took a step forward yesterday with the release of a consultation paper by the Department of Cooperative Governance. The paper asks for input on wide-ranging matters, including the structure of local government.
SA’s Renewable Energy Masterplan (SAREM) was released, aiming for at least 3 GW to 5 GW of renewable energy generation to be rolled out annually across market segments to underpin the development of domestic manufacturing capabilities.
Both the Independent Power Transmission initiative for the new grid and the concessioning of rail took important steps forward with the release of Requests for Information.
At a grid financing workshop, the National Treasury also gave further guidance on the structure of the credit guarantee vehicle (CGV) that they have developed with the World Bank. The CGV will issue guarantees, in lieu of NT, to strategic infrastructure projects that are financed by private capital through PPP. It will be incorporated as a private non-life insurance company regulated by the Prudential Authority. National Treasury has committed to providing junior (first loss) capital of 20%, which will be an initial US$100m moving up to US$500m. There will also be patient capital from development partners.
On a monthly basis, manufacturing production increased by 0.3% in February, following a revised 0.4% growth in January. However, despite these monthly gains, annual growth is still negative, making February the fourth consecutive month of annual contraction. Out of the ten major manufacturing groups, only one—furniture and other manufacturing—contributed positively to annual growth. The three biggest drags were transport (-1.3 percentage points, %pts.), petrochemicals (-1.2 %pts.), and wood products (-0.3 %pts.). The last Absa PMI, albeit remaining below 50 points in March, suggests there could be some improvement next month.
SA’s foreign reserve holdings rose to $68.5 billion in March, up from $66.3 billion in February and well above expectations of $65.7 billion. The key driver behind the stronger-than-expected outcome was the gold price, which continued to reach new highs throughout March. As a result, the value of SA’s gold reserves increased by over $1 billion, rising from $11.5 billion to $12.6 billion.
Regarding the US labour market, the unemployment rate rose marginally in March, ticking up from 4.1% to 4.2%. However, job growth surprised on the upside, with nonfarm payrolls increasing by 228k—substantially exceeding forecasts of 135k and marking the largest monthly gain since December. Job gains were concentrated in health care (+54k), social assistance (+24k), and transportation and warehousing (+23k). Retail employment also rose (+24k) as workers returned from strike activity, while federal government employment continued to decline (-4k, following a -11k drop in February).
On the price front, headline consumer price inflation eased for a second consecutive month in March, falling to 2.4% y-o-y from 2.8% in February. This was lower than market expectations of 2.6%. Core CPI, which excludes the more volatile food and energy components, also moderated, declining from 3.1% to 2.8% y-o-y, again below expectations of 3.0%. The drop in headline inflation was largely driven by a sharp decline in gasoline prices, with food prices providing upward pressure. Meanwhile, the moderation in core CPI reflected slower m-o-m increases in shelter, transport services, medical care commodities, apparel, and used vehicles.
At the time of the March FOMC meeting, Liberation Day tariffs—expected to be inflationary—had not yet been announced. Nevertheless, in the minutes of the meeting released this week, participants flagged tariffs as a potential risk, noting both uncertainty around their magnitude and early signs of anticipatory cost increases. They also observed that depleted household savings could limit consumers’ ability to absorb further price pressures, while tighter immigration policies might contribute to lower inflation in the housing sector. Labour market conditions were seen as unlikely to generate additional inflationary pressure. Participants also highlighted weakening consumer and business sentiment and noted that further deterioration could pose downside risks to growth. The minutes offered some signals about the Fed’s mind-set going forward, reiterating its strong commitment to returning inflation to 2% by keeping policy restrictive, although lower labour market conditions possibly require a change in tac. Rising inflation expectations since the meeting have increased the complexity of the Fed’s near-term policy challenge.
Market pricing about rate cuts shifted notably in response to the tariff developments. Prior to the Liberation Day announcement, the FedWatch Tool indicated an 89% probability that the federal funds rate would be held steady at the May meeting. Following the announcement, the probability of no change fell to 55%, with a 45% chance assigned to a 25bp cut. Following Trump’s U-turn, a 79% probability is now assigned to a hold in May. Looking further ahead, markets price in about three 25bps rate cuts for the remainder of the year – although it remains volatile.
Editor: Lisette IJssel de Schepper
Tel: +27 (0)21 808 9755
Email: lisette@sun.ac.za
Click here for previous editions of this publication.
Please refer to the glossary on the BER website for explanations of technical terms.
Friday, 11 Apr 2025
