Geopolitical tensions continue to escalate this week as President Donald Trump reaffirmed the US commitment to a sustained military campaign against Iran, outlining four strategic objectives to neutralise its missile arsenal, navy, nuclear ambitions, and proxy networks. Markets responded with risk-off flows, pushing safe-haven assets higher amid fears of prolonged conflict and energy supply disruptions. Locally, Budget 2026 reinforced South Africa’s fiscal consolidation path.
International Market Developments
Energy and precious metals markets are reacting sharply to the US-Iran conflict, with Brent crude prices climbing amid concerns over potential Strait of Hormuz disruptions and regional instability. Gold continues its strong performance as a hedge against uncertainty.
In the US, Fed speakers offered mixed views: Governor Christopher Waller tied any March rate cut to upcoming labour data, cautioning on noise in recent figures; Richmond Fed’s Tom Barkin stressed monetary policy’s bluntness for addressing AI disruptions; and Kansas City Fed’s Jeff Schmid highlighted structural shifts, including AI’s potential to offset demographic pressures, while reiterating inflation concerns. The IMF described the US economy as buoyant, projecting 2.4% growth in 2026, unemployment nearing 4%, and inflation returning to 2% by 2027, though flagging trade policy uncertainty and tariffs as drags on activity and potential inflation boosters.
Local Market Developments
Locally, Finance Minister Enoch Godongwana tabled Budget 2026 last week, reinforcing fiscal consolidation. Key highlights include a debt-GDP peak at 78.9% in FY25/26 (slightly higher due to increased bond issuance amid favourable conditions), followed by declines to 77.3% in FY26/27 and 76.5% in FY28/29. The consolidated deficit narrows to 4.5% of GDP in FY25/26 (from 4.8% prior estimate), improving to 4% in FY26/27 and 3.1% in FY27/28, with primary surpluses rising (0.9% in FY25/26 to long-term 2.9%). Revenue projections lifted modestly (R28.8bn higher for FY25/26, including commodity boosts), no major new taxes (inflation adjustments only), and focus on growth-supporting public investment, spending efficiency, wage containment, and sustainable finances. Macro outlook shows modest improvement: real GDP growth at 1.6% in 2026, 1.8% in 2027, 2.0% in 2028; inflation contained around 3.3% average. Emphasis remains on social wage (60% of budget to education, health, grants), infrastructure, Operation Vulindlela reforms, and gains like FATF grey list removal and recent credit upgrade.