Shares and the rand stay strong in a week of drama

The ALSI once again on a record high

Despite all the attention on the RSA (Ramaphosa) and Trump(US) standoff to gain political points at the news conference last Wednesday, as well as the “don’t want to cut the national government salary account” third national budget, financial markets in South Africa seem to react on the real issue of the US/SA negotiations, South Africa’s promising inflation data and foreign investment interest, that pushed the Rand/$ exchange rate to a new record level for 2025 and the ALSI to a new all-time record.

The ALSI closed Friday higher for the fourth consecutive week at an all-time high of 93 529. This is a weekly rise of 1.0% and now has gained 10.8% since the beginning of the year and 18.0% over the last year. Once again, this movement is in sharp contrast to equity prices in the US and Europe.

The above bullish movement in equities underpins more favourable economic prospects for South Africa during 2025. Gold and Platinum continuous upward movements, the inflation rate increasing only marginally from 2.7% in March 2025 to 2.8% in April (seven consecutive month lower than the midpoint of 4.5%) and the decision by treasury to increase the fuel levy by 16 and 15 cents per liter, without putting a burden on the motorist over the short run all contributed to the positive sentiment on markets.

As the over-recovering in the price of petrol currently stands at 19 cents per liter and forty-one cents for diesel, with prospects for lower global oil prices and a stronger Rand over the next six months. 

Issues that matter after the trade negotiations between the US and SA

It seems that genuine issues that were talked to in the white house between President Trump and President Ramaphosa were favourable for South Africa. It is expected that the AGOA agreement will continue, President Trump will attend the G20 summit, at talks in boost bilateral trade and investment, will continue.

Trade, Industry & Competition Minister Parks Tau said in an interview in Washington “We are ready to negotiate on the offer submitted and while we are negotiating, we are proposing that the US maintains the reciprocal duty at no more than 10%,”.

Analysts are now starting to remodel the possible effects of more positive prospects for South-Africa /US trade and investments on South Africa’s economic growth rate and the Rand/$ exchange rate.

This just after the Minister of Finance have downgraded the country’s economic growth rate from 1.9% to 1.4% on the back of President Trump’s tariff announcements on “Liberty Day” at the beginning of April.

The minister of communications and digital technologies Solly Malatsi announced in a policy directive the proposed relaxing of Black economic empowerment (BEE) policies in the ICT sector. This will give the green light for the billionaire Elon Musk’s Starlink to commence business in SA.

This may pay the part for other foreign businesses towards direct foreign investments in other sectors in South Africa.

The Rand/$ on its lowest level for 2025 

On the foreign exchange market, the Rand improved against the US$ over the week by twenty-two cents to its strongest level this year of 17.88/$. Against the British £ the Rand depreciated by sixteen cents to R24.12/ £ and against the Euro by thirteen cents to R20.24/€.

The stronger Rand/$ rate, lower fuel prices over the last two months and the strong surge in the prices for gold, platinum and palladium are likely to keep the inflation rate below 3.0% till the next meeting of the MPC in June.

A cut of twenty-five basis points in the repo rate by the MPC became more a certainty, with the odds of another twenty-five basis points cut within the next six months, also a growing possibility. Especially if further trade talks with the US lead to a stronger Rand and precious metal prices continue to rise. 

US and European equities lower on tariff threats 

On some global equity markets prices dropped sharply after US president Donald Trump again fueled the trade war by warning to levy high tariffs on the EU and smartphone giant Apple.

In Europe equity prices traded down 1.7%, the S&P 500 in the US lost 0.67% after the announcement trading 1.9% down over the week. 1.1% cent in early trading. President Trump wants to introduce a fifty per cent tax in June on all imports to the US from the EU, including on pharmaceuticals and luxury items.

He also intends to impose a twenty-five per cent tariff on Apple and Samsung on iPhones sold in the US but produced elsewhere. 

Prospects for this coming week

This coming week domestic and foreign investors await the release of South Africa’s producer price inflation rate for April to be released by STASSA on Wednesday. It is expected that the annual increase in the PPI will be 0.7%.

This is higher than the annual producer inflation rate of 0.5% recorded for March 2025. The country’s balance of trade numbers for April will be published on Thursday and the budget balance on Friday. 

Globally, the US will release the Federal Reserve Open Market Commission (FOMC) minutes of their meeting in April.

The reasons for keeping its bank rate unchanged will be revealed. Its second estimate of GDP economic growth rate will be announced on Thursday.

The personal income and spending figures for April in the US will be announced on Friday. Canada will release its GDP growth rate for Q1 2025 on Friday. 

Chris Harmse is the consulting economist of Sequoia Capital Management and a senior lecturer at Stadio Higher Education.

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