Last week, local bond market activity started picking up following the December holidays, but with the market on the backfoot following impressive performance in 2024. Continued talks of tariffs from US President-elect Donald Trump and strong US employment figures reinforced the view that the Fed will follow a cautious approach to interest rate cuts this year.
International Market Developments
Minutes of the Federal Reserve December meeting showed that officials expressed concern about inflation and the impact that President-elect Donald Trump’s policies could have, indicating that they would be moving more slowly on interest rate cuts because of the uncertainty. “Almost all participants judged that upside risks to the inflation outlook had increased,” the minutes said. “As reasons for this judgment, participants cited recent stronger-than-expected readings on inflation and the likely effects of potential changes in trade and immigration policy.” They also reduced their outlook for expected cuts in 2025 to two quarter-point reductions (previously four at September’s meeting). The market will be closely watching the US PPI and CPI data that is due out this week. Sticky inflation and strength in the labor market are expected to give the Federal Reserve more headroom to keep interest rates high.
Concerns over Trump’s tariffs have led to a sell-off in emerging markets as investors have shifted to haven assets. Trump has signaled plans for aggressive, punitive tariffs on goods from China, Mexico and Canada as well as the other U.S. trading partners. In addition, he intends to pursue more deregulation and mass deportations.
Local Market Developments
The Public Service Co-ordinating Bargaining Council (PSCBC) gave an update on the ongoing government wage talks last week. The government upped its wage increase offer just slightly to 5.0% from 4.7% for 2025/26. Labour unions had lowered their wage demand for 2025/26 to 6.0% from 7.5%. Negotiations are scheduled to resume on Wednesday this week after labour unions have consulted their members on the revised government offer. The National Treasury pencilled in an increase of 4.9% in the total wage bill for 2025/26.