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The big global data prints of the week came on Tuesday, with better-than-expected Chinese GDP growth for Q2 and US core CPI coming in lower than expected, but still (finally) reflecting some signs of tariffs being passed on to consumers. Locally, the uptick in mining production and retail sales was positive for Q2 GDP dynamics. In addition to the data, there was plenty of political news to digest. Globally, US President Donald Trump dished out more tariffs to be implemented on 1 August, while the push to essentially oust US Federal Reserve (Fed) chair Jerome Powell continued. Locally, President Cyril Ramaphosa placed Police Minister Senzo Mchunu under special leave – something which has never happened before – pending the outcome of another commission of inquiry.
The prior week, the head of KZN police, Nhlanhla Mkhwanazi, accused Mchunu and others of trying to quash a probe into political killings. Mchunu has been touted as a potential candidate to take over the reins as ANC president during its elective conference in 2027. However, even if he is found innocent down the line, this suspension will likely set him back. Separately, the ANC, once again, postponed its NEC meeting.
Meanwhile, news broke that the visa of SA’s Special Envoy to the US, Mcebisi Jonas, was denied. The DA claims the denial happened back in May, but either way, it is indicative of US-SA relations remaining strained. It is difficult to see who a politically palatable choice would be, who would also fairly represent SA, and appease the White House. While there was US representation, Treasury Secretary Scott Bessent did not attend the G20 finance heads meeting in SA this week.
Moving back to tariff man Trump, the big story over the weekend was that the US plans to impose a 30% tariff on the European Union (EU) – more than the 20% Liberation Day tariff announced in early April. Key training partners Canada (35% tariff) and Mexico (30%) face similar hurdles, although some exceptions for trade covered by the United States-Mexico-Canada Agreement (USMCA) remain in effect. All countries have, so far, held off on immediate retaliation, but the EU has finalised a list of countermeasures to strategically target US exports to the EU. It has held off on retaliating so that negotiations can continue, but plans to target €72bn of imports, ranging from industrial goods (Boeing, cars, and machinery) to agrifood products (including bourbon). Some EU countries pushed for the option to use anti-coercion instruments, which gives broader powers (to, for example, introduce taxes on US tech companies or restrict access to parts of the market).
The preliminary trade deal reached between Indonesia and the US this week suggests that the US is indeed open to negotiating. Indonesia received a letter with a 32% tariff rate last week; this has now been set at 19% with commitments that the country will buy $19bn of products from the US (and, like Vietnam, it will face ‘punishment’ for transshipping). American products can enter Indonesia duty-free, so despite the claim that it is “a good deal for both parties, " it benefits the US disproportionately. But, at least it leaves Indonesia better off than it was last week. During the presidential budget debate vote, Ramaphosa confirmed that negotiations between the US and SA on trade are still taking place with the hope of bringing down the 30% tariff announced last week.
Although not consistent on the issue so far, Trump ramped up the rhetoric that there should be a ceasefire between Russia and Ukraine within 50 days; otherwise, he would consider 100% secondary tariffs on Russia. In the traditional sense, secondary tariffs would be imposed on trading partners of the targeted nation. Due to significant sanctions already in place, there is very little direct trade between the US and Russia. Russia has since said that ultimatums are unacceptable. Trump also committed to sending more weapons to Ukraine if Europe was willing to pay for them (the EU trade retaliation list excludes imported military products). He reportedly also asked Ukraine if it would be able to hit Moscow if the US provided the weapons.
In financial markets, 30-year US Treasury yields rose above 5% for the first time in June as traders digested the US CPI print, which showed some tariff-price pressure, despite coming in lower than expected. However, the cooler-than-expected PPI print turned this sentiment around, as it upped the probability of Fed rate cuts later this year. Markets were volatile on Wednesday morning (US time) when headlines speculated that Trump planned to fire Fed Chair Powell. About an hour later, he said that it was highly unlikely he would fire Powell before his term ends (although he admitted to discussing this option). While he still called Powell a ‘knucklehead’, it was enough to comfort markets to some extent, although yields remained a little higher. On Polymarket (a cryptocurrency-based prediction market), the current odds of Powell leaving the Fed this year are around 25% (his term officially ends in May 2026).
Following solid US retail sales data, markets shrugged off the concerns around the Fed on Thursday, when the S&P500 briefly rose above 6 300 and closed at another all-time high.
Meanwhile, spurred on further by the so-called Crypto Week in the US, Bitcoin rose above $120 000, a record high, early in the week although it declined a little later. Crypto-centric bills are being discussed by US government officials, with the Trump administration generally seen as crypto-friendly.
This week's most important local data release is June’s consumer inflation (CPI) report, due on Wednesday. We expect a modest acceleration in headline inflation to 3.0% y-o-y (from 2.8% in May and April). Higher food prices likely contributed to the uptick, while another large annual decline in fuel prices continued to exert downward pressure. However, the fuel-related drag is expected to diminish in the coming months, which should see headline inflation drift higher, although not expected to breach the 4.5% target midpoint on a sustained basis. The upward move highlights the challenge facing the SA Reserve Bank (SARB) if it aims to shift expectations toward a lower 3% target: it must do so even as inflation is gradually rising. The inflation print will feed into market expectations for rate cuts, although it is unlikely to change our expectation for another 25bps rate cut during the SARB’s July meeting.
On the political front, parliament is set to vote on the Appropriations Bill on 23 July. In the past, a procedural formality, the vote could take on symbolic significance in the current GNU context. The DA has indicated it opposes budget votes linked to ministers facing corruption allegations. While the Bill is still expected to pass, this could set the tone for more contentious legislative dynamics in the months ahead.
Globally, attention will centre on the European Central Bank (ECB)’s policy meeting on Thursday. Following seven consecutive rate cuts, the ECB could keep rates on hold next week – although some easing later this year is still expected. With inflation now at the 2% target and a subdued outlook, the ECB can afford to pause after this move and monitor how geopolitical and trade-related uncertainties filter through to inflation and growth.
The flash PMIs for July from both the Eurozone and the US (due Wednesday) will provide fresh signals on economic momentum. While PMIs are not sentiment indicators per se, renewed global trade tensions—particularly around proposed US tariff changes—could have affected new orders and production indicators. A slew of consumer confidence data is expected from the Eurozone, which may better reflect the region's latest political and financial volatility.
Mining production rose by an above-consensus 0.2% y-o-y in May, marking the first annual expansion since the start of this year. This follows a sharp 7.7% y-o-y contraction in April. Iron ore was the largest positive contributor to the annual figure (+12.5%, +1.7%pts). On the downside, declines in manganese ore and coal production were the biggest drag on the headline figure (both shaving off 1%pts). More important for quarterly GDP dynamics, output rose by a solid 3.7% m-o-m in May (seasonally adjusted, sa) up from a flat reading in the prior month. Barring a sharp reversal in June, it seems the mining sector is likely to contribute positively to Q2 GDP.
Stats SA also released a batch of domestic trade data for May, affirming that consumer spending has remained solid during Q2. Real retail trade sales increased by 4.2% y-o-y in May. This was below expectations of a 4.5% rise and slower than a surprisingly strong April (5.2% y-o-y). However, growth was broad-based with six out of seven subsectors reporting gains. The largest positive contributors were general dealers and retailers of textiles, clothing and footwear. On a monthly basis (sa), retail sales increased by a modest 0.1%, slower than a 1.1% rise in the prior month. More positive, however, is that real motor trade sales rose by 4.7% y-o-y in May, faster than a 0.2% y-o-y rise in the prior month. Only two out of six subsectors detracted from annual growth, with most gains coming from used vehicle sales (+9.6%, +1.9%pts). Motor trade sales (sa) were up by 0.2% m-o-m, offsetting a 0.1% m-o-m decline in April.
On the other hand, the wholesale sector did not fare too well, as annual wholesale trade sales contracted for a fifth straight month in May (down 4.3% y-o-y). Compared to the previous month, real wholesale trade sales (sa) fell by 2.1%, following a 1.6% gain in April.
Lebohang Namo
Annual US headline consumer price inflation (CPI) increased to 2.7% in June, up from 2.4% in May 2025. This was the second consecutive acceleration and the fastest increase since February. Some tariff-sensitive categories saw price increases. The primary drivers behind the rise in inflation were price increases for transport (+3.4%), food (+3%), and used cars & trucks (+2.8%). Furthermore, energy costs decreased notably slower (-0.8% compared to -3.5% in May). On a monthly basis, CPI increased by 0.3% m-o-m, up from 0.1% in May, which was the biggest gain in five months. Core inflation, which excludes food and energy prices, rose to 2.9% y-o-y in June from a four-year low of 2.8%. Meanwhile, the PPI was unchanged. The movements mimicked the trends of the CPI, with higher goods prices (tariff-linked) outweighed by lower travel service costs.
Retail sales recovered from a slump in May (-0.9%) and April (-0.1%), with a 0.6% m-o-m increase. The improvement was broad-based, with motor vehicle sales doing surprisingly well. Note that US retail sales are not adjusted for inflation, so it is uncertain whether higher prices or higher volumes are driving sales.
China’s economy grew by 2% y-o-y, which was slower than Q1 (5.4%) but ahead of expectations. Meanwhile, industrial production (IP) in China bounced back after a six-month low. Production increased by 6.8% y-o-y in June, above consensus. This was the fastest IP growth since March and was aided by several economic-boosting government initiatives. Retail sales fell short of expectations (4.8%). Finally, the surveyed unemployment rate remained steady at 5% in June.
According to the ZEW survey, economic sentiment in Germany climbed to its highest level in over two years as hopes rose for a resolution to US-EU trade tensions and possible fiscal support at home. Eurozone-wide confidence also improved modestly.
The UK headline CPI increased by 3.6% y-o-y in June, up from 3.4% in the previous year. The largest contributor was transport, while housing & household services were the largest detractor. Core CPI, which excludes energy, food, alcohol and tobacco, increased by 3.7% y-o-y, while services remained unchanged at 4.7%. On a monthly basis, CPI climbed by 0.3%.
According to the Office for National Statistics (ONS), the UK unemployment rate increased to 4.7% in Q2, which was above consensus. Meanwhile, job vacancies fell for the twelfth consecutive quarter. Wage growth remained solid, led by the public sector.
Editor: Lisette IJssel de Schepper
Tel: +27 (0)21 808 9755
Email: lisette@sun.ac.za
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Please refer to the glossary on the BER website for explanations of technical terms.
Friday, 18 Jul 2025
