Global financial markets continue to be dominated by US trade policy, while locally, all eyes are on the SARB rate decision this week
International Market Developments
President Trump has commented that Fed Chair Powell is expected to leave his position within eight months and further noted that, in his view, Powell has kept interest rates too high and that he is probably doing it for political reasons. Continuing with criticism of the Fed chair, he added that he doesn’t think that Powell has done a good job. Trump remarked that Interest rates should be 3% lower, if not more. The Fed noted that there is no immediate need for Fed Chair Jerome Powell to resign.
With regard to tariffs, the EU has reached a trade deal with the US, ahead of the 1 August deadline, that will see the region face 15% tariffs on most of its exports. The EU has agreed to buy US energy products, invest in the US, and open up markets to trade with the US at zero tariffs. President Trump noted that he would not go below 15% in setting his reciprocal tariffs but could go as high as 50%. Furthermore, President Trump has commented that the US has reached a trade deal with Japan. The deal includes a $550bn investment into the US and a 15% tariff on imports from Japan. The US has also reached an agreement with the Philippines, setting a 19% tariff on the country’s exports.
The US is expected to meet with China this week for a third round of trade talks.
Local Market Developments
Last week, local SA CPI inflation came out at 3.0% y/y (0.3% m/m) in June, up from May’s 2.8% y/y, and at the lower limit of the 3-6% y/y CPI inflation target range. The uptick was largely driven by higher food and non-alcoholic beverage prices, with prices of beef and vegetables spiking in June. Core inflation (which excludes food, non-alcoholic beverages fuel and energy prices), fell to 2.9% y/y in June from 3.0% y/y in May, also evidencing the very modest nature of underlying inflation.
The fuel price fell by 5 cents a litre, reducing inflationary pressure alongside weak economic demand. Total goods inflation in South Africa came out at 2.3% y/y while the measure for services was higher at 3.7% y/y, with services inflation remaining the main driver of CPI inflation.
This week, the markets are focused on the upcoming FOMC meeting on Wednesday, July 30 and the MPC meeting on Thursday, July 31. The FOMC is largely expected to keep the Fed funds rate unchanged despite pressure from President Trump to cut rates and with the SARB meeting on Thursday, market expectations are for a 25bps cut in the repo rate, to 7.0%.