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Locally, the Monetary Policy Committee (MPC) of the SA Reserve Bank (SARB) decided to cut the repo rate by 25bps to 7.25% (prime to 10.75%). The dovish tilt with all six members voting for a cut (and one even preferring a 50bps cut) was surprising – but welcome. Furthermore, the clear signalling around moving to a 3% inflation target is positive and removes uncertainty. However, if the SARB wants to ‘lock in’ on the current lower inflation dynamics, it should be quick to firm up timelines. Clients can find our comment here, while the SARB’s research on the benefits of a shift of the target can be found here.
In a blow to Donald Trump’s reform agenda, most – but not all – of the recently introduced global tariffs were deemed illegal by a US trade court. The White House has said it would appeal the decision, and the appeals court has ruled that tariffs can remain in effect during legislation. The order applies to the Liberation Day reciprocal tariffs and the separate levies placed on Canada, China and Mexico. Important for SA, levies on foreign cars, steel and aluminium imports on national security grounds are still legal. However, this has prompted US investment banks to warn that the US administration may still shuffle some tariffs to different sections that are still allowed. White House spokesperson Kush Desai has already said that the judgement was made by “unelected judges”, so the administration may try to ignore the order. Although technical, this may trigger a constitutional crisis if marshals are ordered not to comply. At this stage, it is also unclear what this means for the trade deals that the US has recently concluded, and how other countries may react to the ruling. So, for now, uncertainty prevails. Meanwhile, Elon Musk said his ‘scheduled time’ at DOGE is coming to an end.
Global financial markets were chirpier at the start of the week following a sudden rebound in US consumer confidence (see international section below) and US President Donald Trump announcing a delay in higher tariffs on the European Union and imported iPhones. The Financial Times has called such reversals (for example, the S&P 500 fully erased the initial loss once the delay was announced) TACO trade – Trump Always Chickens Out. Upbeat earnings from Nvidia and the court ruling lifted sentiment further. The oil price rose on the news of the court ruling, which comes on the eve of a meeting (on Saturday) of key OPEC+ members to decide on output changes due in July. Another accelerated output hike could push prices lower once again.
An area where Trump has not backed out (yet?) is around higher education. This week, his secretary of state ordered US embassies to stop scheduling interviews for student visas, and continued to take aim at Harvard specifically. Many universities rely on income from international students (and government grants). Yesterday, visas for Chinese students were revoked. Like with tariffs, there is a risk that the courts will intervene and decide that (some of) Trump’s decisions do not hold.
While US government long-term bond yields behaved a little better this week, Japanese long-term yields rose and remained high, with another auction drawing soft demand. Investors remain concerned about the fiscal situation in Japan (debt-to-GDP is around 250%), and its decades-long deflation trap seems to have ended, which would warrant higher rates. However, the issue is further complicated because higher yields mean lower bond prices. Japanese authorities hold massive quantities of government bonds (the central bank about ½ of all sovereign debt), whose value is now dwindling. Authorities are expected to intervene and mitigate some of the risks. That said, higher yields ‘at home’ could also mean repatriation by Japanese investors from the US.
Local bond yields fell after the SARB interest rate decision. In addition to the repo rate cut now, the signalled intention to move to a lower target over time likely also contributed. Meanwhile, the rand exchange rate strengthened against all major currencies this week, not just against the (still weak) US dollar.
Next week is busy on the domestic calendar, with several important data releases for Q1 and Q2 scheduled.. Monday kicks off with the Absa PMI and naamsa new vehicle sales for May. The PMI – and actual manufacturing activity – have been underwhelming in 2025 so far. Meanwhile, local vehicle sales expanded nicely from a low base in April, although exports struggled. The S&P Global SA PMI for May is due on Wednesday. An important read on how businesspeople experienced the environment in Q2 will be the release of the RMB/BER Business Confidence Index (BCI) on Wednesday. The BCI stayed unchanged at 45 index points in Q1 as a surge in confidence of new vehicle dealers cancelled out a decline in the other industries. Confidence has a good track record with private fixed investment over time, with higher confidence pointing to increased investment and vice versa.
On Tuesday, we take a step back in time for 2025Q1 GDP figures. Consensus sees a 0.2% q-o-q expansion following the 0.6% growth rate recorded in 2024Q4 – we are a touch below consensus at 0.1%. If one considers the high-frequency data available for Q1 so far, it is not unfeasible to even see a small quarterly contraction with key sectors such as manufacturing, mining and wholesale trade down on a quarterly basis and building plans data also being downbeat. However, the consumer was still relatively upbeat in Q1, reflected in a slight uptick in q-o-q retail sales following a solid Q4 and higher motor trade sales. The possibility of revisions to historical data adds to the uncertainty and recent volatility of the small agricultural sector, which means it can have an oversized impact on GDP growth dynamics. Finally, it remains difficult to gauge the hidden services sectors (finance and personal services). Clients can expect a comment on the GDP data on Tuesday. On Thursday, we will stay with Q1 data with the SARB releasing the current account balance.
On the global front, there is a batch of final PMI data, as well as ISM manufacturing and services data from the US. The US jobs data for May, due on Friday, is expected to show a slowdown in monthly job growth, although unlikely, sufficiently so to move the unemployment rate. The European Central Bank (ECB) is widely forecast to cut its policy rate further on Thursday, with preliminary consumer inflation data for the region due on Tuesday expected to reflect further deceleration in price pressure. The Bank of Canada is expected to keep rates unchanged next week after it also left rates unchanged in April, following seven consecutive cuts in preceding meetings.
Headline factory-gate inflation, as measured by the Producer Price Index (PPI) for final manufactured goods, remained unchanged at 0.5% y-o-y in April 2025. Like consumer inflation last week, this was above consensus expectations following a string of downward surprises. Food, beverages and tobacco products were the most significant contributor to the annual PPI (4.7%; + 1.4% pts). On a monthly basis, PPI rose by 0.5% in April. Looking at the pipeline, intermediate good prices rose by 8.5% (from 7.4%), while PPI for water and electricity accelerated to 11.2% y-o-y in April 2025 from 10% in March.
In the US, the Conference Board’s Consumer Confidence Index rebounded sharply in May, rising by 12.3 points to 98, the largest one-period gain in four years. The survey’s cut-off date was 19 May, shortly after China and the US agreed to reduce tariffs temporarily, while negotiating a deal. The Present Situation Index rose by 4.8 points to 135.9, with consumers reporting better business conditions but a slightly weaker labour market. Looking ahead, the six-month outlook improved, while the perceived likelihood of a recession over the next year declined.
Outside the US, Germany’s GfK Consumer Climate Indicator rose to –19.9 in May from –20.8 the month before, its third consecutive improvement, supported by better year-ahead expectations. However, sentiment remains under pressure from ongoing US trade unpredictability, financial market volatility, and domestic stagnation. Similarly, the preliminary EU and Euro Area Consumer Confidence Indicators showed marginal gains in both the Economic Sentiment Indicator and Employment Expectations Indicator.
Meanwhile, on the data front, US durable goods orders fell by 6.3% in April, following a 7.6% rise in March. The March increase likely reflected front-loading of purchases ahead of expected tariff announcements. At first glance, the upward revision in the 2025Q1 US GDP figure to a contraction of ‘just’ 0.2% q-o-q (from 0.3%) is good news, but the good mix is now less positive. Corporate profits fell, and underlying demand growth slowed. Net trade on the back of high imports remains the biggest drag on the economy.
The minutes from the latest US Federal Reserve Open Market Committee (FOMC) meeting reiterated a cautious, data-driven stance, with tariff policy and broader fiscal shifts continuing to pose upside risks despite solid growth and labour data. While headline labour market indicators remain strong, officials noted early signs of softening business sentiment, delayed hiring and investment, and weakening consumer confidence. Some suggested that following a period of sustained high inflation, firms may now be more willing to raise prices, especially given the higher inflation seen in the last few months.
These concerns supported the Committee’s decision to stay on hold and maintain a flexible, data-dependent posture. At the time of the meeting (7 May), there had been no tariff ‘cease-fire’ between the US and China, and Trump’s trade actions had not yet been challenged in court.
In short, the minutes were seen as relatively hawkish and suggest that the Fed considers the potential impact of tariffs to be bigger for inflation (up) than for growth (down).
Editor: Lisette IJssel de Schepper
Tel: +27 (0)21 808 9755
Email: lisette@sun.ac.za
Click here for previous editions of this publication.
Please refer to the glossary on the BER website for explanations of technical terms.
Friday, 30 May 2025
