Stock markets are plummeting as the Trump administration’s poorly conceived tariff strategy backfires, potentially sparking one of the most severe sell-offs in US history—a scenario Trump likely didn’t intend. To provide some context, however, this downturn was inevitable given tightening USD liquidity and a mature business cycle, although it has certainly been exacerbated by the tariffs. Compounding the chaos, aggressive cuts to the civil service and government spending—championed by the DOGE team—threaten to flood the labour market and slash fiscal outlays, creating a perfect storm for trade and asset price upheaval. Trump aims to stabilise America’s debt and avert a fiscal crisis, a noble goal to ease taxpayer burdens and boost private-sector growth. Critics, however, warn the rapid pace risks shocking the economy, leaving firms little time to adapt. As for financial markets, they face mounting stress, forcing the Fed to choose between tackling tariff-driven inflation or a deepening growth slump. History suggests the latter, as sharp asset price drops threaten bank balance sheets, credit cycles, and a worsening recession. All in all, market sentiment is likely to remain risk-off for a while longer, pointing to a continued shift away from higher-risk assets such as the ZAR in a broad-based rotation to safety.

Against this backdrop, South Africa’s risk profile has also taken a knock as the Government of National Unity (GNU) faces the prospect of collapsing. If reports are to be believed, the ANC, Action SA, and others will work towards finding the necessary expenditure cuts to avoid a VAT hike over the next month, leaving the DA out in the cold. Headlines this morning suggest the ANC’s National Executive Committee (NEC) will hold a special meeting in the coming days to give President Ramaphosa a mandate to act against coalition partners who voted against the budget, implying a cabinet reshuffle could be on the cards with DA ministers set to lose their positions. While it is all speculation amid plenty of uncertainty, it will cause plenty of anxiety among investors who had hoped the GNU could deliver a more reformist agenda.

ZAR Markets

Global risk aversion, coupled with SA’s worsening risk profile due to political uncertainty in the country, has hit the ZAR hard this week. The USD-ZAR tested 19.0000 yesterday, and although it closed well below 18.8000, the rand is not out of the woods yet with a fresh bout of depreciation likely today. Against the EUR, the ZAR broke above 21.0000 yesterday for the first time since September, while the GBP-ZAR also traded to record highs just south of 25.0000. This reflects just how much pressure the ZAR is under right now, with markets highly sensitive to headlines concerning the GNU’s potential collapse. Expect the market to get close to yesterday’s intraday highs again today as the market remains extremely risk averse.

Global FX Markets

The U.S. dollar struggled to recover on Friday, as the Japanese yen hovered near a six-month high and while the greenback hit six-month lows against cable and the euro following President Donald Trump’s unexpected and aggressive new tariff measures. The dollar index fell 1.9% on Thursday, its worst drop since November 2022. Trump’s tariff actions targeted major global trading partners, including the EU, Japan, and China, with the latter facing duties of up to 54%. Both China and the EU have pledged to retaliate, escalating the risk of a trade war. The threat for the US is stagflation which will keep the economy in the doldrums, reinforcing the selling of US stocks by international investors while locals pile into US Treasuries as a safe haven play. Looking at the day ahead, traders are now focusing on the U.S. payrolls report for insight into the economy’s health and potential for future monetary easing. Economists are expecting 135,000 jobs to have been added in March, slightly fewer than in February.