Risk on sentiment continues to grip global markets as President Donald Trump continues to roll-out his trade tariff agenda. Locally, December CPI print surprised on the downside and all eyes are on the SARB MPC which is expected to deliver a hawkish 25 basis point cut to the repo rate.
International Market Developments
Risk-on sentiment prevails as the Trump administration appears to refrain from taking swift action on imposing tariffs across the board. Non-USD currencies rally with a strong performance from the beta ZAR, which returned to mid-December levels (R18.35/$). The new administration’s tariff agenda is slowly unfolding, and country specific announcements could be staggered. Canada and Mexico are first on the agenda on February 1, and China is faced with a review of the implementation of Phase 1 tariffs in 2018 to be reported on April 1.
Last week the World Economic Forum’s (WEF) 2025 Annual Meeting in Davos took place under the theme of ‘Collaboration for the Intelligent Age’. The annual meeting brought together nearly 3,000 global leaders to discuss pressing economic, technological, and geopolitical issues. President Trump gave a virtual address at the forum. In his address, he outlined his administrations priorities around deregulation, tax cuts, fossil fuel expansion, and “America First” trade policies. He criticized climate agreements, DEI initiatives, and previous administration policies, emphasizing economic growth and reducing international dependencies.
This week, several central bank meetings are scheduled in the context of a repricing of interest rate expectations. The catalyst for the repricing has been the pro-growth, protectionist, and reflationary policies promised by the Trump administration. Monetary policy meetings this week include Chile and Hungary (January 28th), Brazil, Canada, Sweden and the FOMC (January 29th), the ECB and South Africa (January 30th) and Colombia and the Dominican Republic (January 31st).
On a global scale, investors will closely watch the FOMC meeting on Wednesday. Investors expect no cuts to the Fed funds rate. The target range of the fed funds rate is currently 4.25% – 4.5%.
Local Market Developments
Last week, the South African CPI surprised on the downside. Headline CPI inflation printed at 3.0% in December, below market expectations of 3.2%. The major source of the surprise downside came from the quarterly survey of housing costs (16.5% of the CPI basket), with inflation in this category coming in a lot softer than expected. This helped pull core CPI inflation lower to 3.6% in December, down from 3.7% the month prior.
Looking ahead, attention will be paid to the SARB MPC on Thursday afternoon, where the Governor will give an update on monetary policy. Against changes to inflation expectations and an uncertain global environment, investors largely expect the SARB to deliver cautious cuts of 25 basis points this month. It is worth stressing that uncertainty over the outlook is much higher than usual, and consequently that the evolution of data and risks will be critical to watch.