Yesterday was a chaotic day for markets, to say the least. A glance at the ZAR’s performance and the bond market reveals stark shifts, as both scramble to recalibrate amid evolving risks and economic outlooks. Locally, the spotlight fell on Parliament, where the ANC managed to push through its latest fiscal framework. Yet, this victory carries a steep price—potentially fracturing the GNU or, at minimum, exposing it to that danger. With the DA rejecting the framework and vowing to legally contest Parliament’s approval of the 2025/26 budget, investors are understandably sceptical. Can a GNU member so fundamentally at odds with the framework still credibly participate in the government responsible for enacting it?
Globally, the turbulence intensified with President Trump’s unveiling of a 10% baseline tariff on most US imports, coupled with steeper reciprocal tariffs to mirror those of other nations and counter trade imbalances. The move has jolted markets worldwide, sparking fears of sluggish growth, battered corporate profits, and rising inflation. South Africa didn’t escape unscathed, facing a hefty 30% tariff. This punishing rate will strike a blow to SA’s exports—especially its vehicle sector. Whether the US sustains such tariffs on commodities like PGMs remains uncertain, given South Africa’s role as the world’s top producer and America’s reliance on these metals for catalytic converters in car manufacturing.
The silver lining? These tariffs might spark negotiations toward freer global trade. Wednesday’s announcement set the stage, but it’s likely just the opening act in a saga of prolonged talks and a period of debilitating uncertainty. Trump’s high-stakes gamble could yield a spectrum of outcomes: at best, a breakthrough in global trade liberalisation; at worst, a spiralling trade war marked by retaliatory salvos and short-term stagflation. Israel has been the first country to respond and may offer a base case of how this trade war plays out. The country proposed to slash all tariffs on US goods to zero in hopes of coaxing a reciprocal move from Trump. Should he bite—and others follow—the speed at which market confidence rebounds could be a fascinating spectacle.
ZAR Markets
The USD-ZAR will test the 19 handle today for the first time since early February, but this time the ZAR looks more vulnerable and could sustain losses. The Trump administration’s tariff announcement has triggered significant risk-off trade overnight at a time when the ZAR lacks any kind of resilience due to concerns that the GNU might be collapsing. There is plenty of uncertainty on that front, meaning any developments and headlines hold plenty of market-moving potential. Should the DA leave the GNU, the ZAR could sell off sharply towards pre-election levels. In contrast, the DA announcing that it will stay in in the governing coalition could calm markets slightly and help the ZAR recover back towards levels closer to R18.5000/$. However, even in this scenario, investors will need to assess whether hopes that the GNU would promote SA’s future are misplaced. If the political parties continue down this fractious path, SA may be left with coalition politics that enhance SA’s risk profile, not dilute it.
Global FX Markets
The U.S. dollar weakened broadly against a basket of currencies following President Donald Trump’s announcement of aggressive tariffs on U.S. trading partners, including a 10% baseline tariff on all imports and higher duties on about 60 countries, effective April 9. The USD Index is currently knocking on the door of the 103.00 level as we enter the start of the London trading session The escalation of trade tensions, building on existing tariffs on aluminum, steel, autos, and Chinese goods, sparked fears of a global trade war and economic slowdown. Global stock markets fell, and investors turned to safe-haven assets like the Japanese yen, Swiss franc, gold, and U.S. Treasuries, with 10-year Treasury yields dropping to a five-month low of 4.04%. The yen and Swiss franc strengthened significantly against the dollar with the yen trading around USD/JPY147.60, and the Swissie at 0.8755 at the time of writing, while risk-sensitive currencies like the Australian and New Zealand dollars weakened.