Central banks are confronting a significant shift as investor panic triggers a sharp decline in global stock markets. US President Trump acknowledged the downturn, stating that while he dislikes equity declines, they may serve a corrective purpose. However, sustained pressure could test public tolerance and intensify scrutiny on his administration, particularly given expectations tied to his economic agenda.
Market volatility has reached extreme levels, and while such events are typically short-lived—especially if central banks intervene—they necessitate significant adjustments. This market disruption aligns with the Trump administration’s objective of reshaping global trade dynamics to compel nations to negotiate. The sell-off may achieve that, though escalation of trade conflicts could worsen conditions. A constructive response, with countries easing trade barriers, could facilitate a rapid recovery.
Looking ahead, two key factors will determine the outcome: central banks’ actions, which historically prioritise stabilising growth and market stability over inflation concerns, and nations’ responses to US tariffs. A coordinated approach—central bank stimulus paired with trade renegotiations—could stabilise markets quickly. Conversely, retaliatory tariffs risk prolonging the downturn, an outcome benefiting no party involved.
ZAR Markets
The USD came under significant pressure last week following the Trump administration’s tariff policies, and most EM currencies were able to take advantage and appreciate. However, the ZAR has not enjoyed the same fortune. It stood out as the worst-performing EM currency last week, reflecting idiosyncratic risks related to the potential collapse of the GNU. More broadly, it has outperformed only the Turkish lira in year-to-date terms. For context, Turkey faces its socio-political issues following the arrest of Istanbul Mayor Ekrem İmamoğlu on corruption and terrorism charges, which many view as politically motivated by President Recep Tayyip Erdoğan to silence his main rival. All that to say, the ZAR’s resilience against external pressures is extremely low at the moment, meaning further pain could lie ahead in the coming days. It has already been testing its worst levels since April last year, when there was significant uncertainty around SA’s May election outcome. The market could thus face some technical resistance between R19.4000/$ and R19.5000/$, but should the GNU break up, this will not hold.
Global FX Markets
Investors fled to safe-haven currencies like the yen and Swiss franc on Monday, dumping the risk-sensitive Australian dollar, as U.S. President Donald Trump’s aggressive tariff policies fueled a deepening market rout and heightened global recession fears. Asian stock markets and Wall Street futures plummeted, reflecting panic over Trump’s trade war escalation, which erased nearly $6 trillion from U.S. stock values last week. The yen strengthened against the dollar, down 0.45% at 146.21 after a sharper earlier drop, while the Swiss franc rose over 0.6% to 0.8548, building on last week’s 2.3% gain. Meanwhile, the Australian dollar hit a five-year low before settling 0.66% lower at $0.6005, and the New Zealand dollar fell 0.38% to $0.5575, both battered by risk aversion. The tariff fallout has sparked speculation of aggressive Federal Reserve action, with markets now pricing in a 55% chance of a rate cut by May and over 100 basis points of easing by December, a shift from earlier expectations of steady rates. Fed Chair Jerome Powell, however, remained cautious, suggesting it’s premature to commit to a response.