Global financial markets continue to be affected by global trade shifts and by the escalating trade war between the US and China. Locally the rand has dropped sharply on the back of instability within the GNU.
International Market Developments
Financial market sentiment has been severely risk-off since the start of the month on the back of trade tariffs and the consequent sharp escalation in the trade war, particularly between China and the US. US President Trump raised the US reciprocal tariff on China to 125%, to be added to the existing tariff of 20%, but granted items such as mobile phones and laptop computers an exemption from the 125% rate, warning that this position would be considered in a review covering the US’s zero global tariff rating for semiconductors.
China has retaliated again against the US, looking to raise its tariffs on US goods to 125% from 84%, as the trade war between the two goliaths escalates, driving significant concern over the global growth outlook.
Better than expected US inflation has been observed. The US headline CPI year-on-year measure fell from 2.8% in February to 2.4% in March, undercutting consensus expectations for a 2.6% print, while core inflation fell 0.3%pts to 2.8% (consensus: 3.0%). Markets are cautiously focused on the potential inflationary impact still to come from global trade shifts.
Local Market Developments
While markets saw a burst of investor risk-taking towards SA after the formation of the GNU, this has since weakened on the poor economic growth outlook and weak progress on resolving political issues within the GNU.
Early April we saw the Finance Minister’s March budget up for approval in parliament, with recent comments from political parties showing that the ANC has battled to find support for its VAT hike proposals, and even for some increased spend allocations.
Markets remain focused on the potential for the breakup of the coalition between the DA and the ANC, and this has driven the rand even weaker, to above R19.60/USD. Speculation and high political uncertainty could continue to drive the Rand weaker, particularly if the likelihood of the DA’s exit from government continues to rise. Looking ahead, the tariff and GNU developments will remain the focus this week.