South African markets react to Trump's economic decisions

Despite the decision by US President Trump to “invade” Iran by deploying “massive armada" to the region, that have left for Iran closing the Strait of Hormuz, building up geopolitical tensions in the Middle East, South African financial markets gained on these uncertainties. The decision by the US Supreme Court to put a roadblock to Trump’s global tariffs with the court ruling on Friday that the tariffs imposed by Trump are illegal, also boosted domestic market sentiment to the good.  Trump had imposed a 30% tariff on South Africa.

Lower unemployment during quarter four 2025 of 3.4% (31.9% in quarter three), adding 44,000 new jobs and the inflation rate decreasing to 3.5% in January (3.6% in December 2025), also contributed to a stronger Rand, precious metal prices and equity prices on the JSE.  On Friday afternoon, just after the news of the US Supreme Court judgement against Trump’s tariff policies, the gold price leaped by more than $100 to $5 109 to the dollar at the close of US markets. Bullion ended the week $68 higher and went up by 5.7% over the last month.

The Rand last Thursday, traded at one stage at nearly R16.20/$, up by 25 cents from R15.95/$ at the close of the previous Friday. The currency strengthened quickly again on Friday afternoon on the Trump tariff “embargo” to close on R16.03/$. Against the Pound the Rand appreciated by 16 cents last week to R21.61/£. This is the strongest level over the last three years. Against the Euro, the Rand traded flat last week, gaining only 3 cents to R18.89/€ on Friday. This has been the strongest level since December 2024.

Equity prices rallied

Share prices on the JSE continued to recover last week, after the speculative sales at the end of January, that led to the All Share index losing more than 5 000 points on Friday January, 30 2026. The index gained 2 438 or 2.02% last week. As a result of recovering Gold, Platinum and Palladium prices last week, the JSE Precious Metals and Mining index increased by 2.3%.  On the JSE equity board, Mid-caps are up by 5.0% since the beginning of the year. The Financials index improved by more than 9.0% since the beginning of 2026, as well as the Resource 10 index shooting up by 11.0% for the year-to-date.

Will President Trump back down on the court order?

World financial markets await in anticipation on how the reaction of President Trump on the high court decision will affect global equity, prices, bond rates and exchange rates this coming week. The President already indicated that he will not back off on his tariff policies due to the high court decision. The BBC over the weekend reports that the President reacted aggressively by announcing that the court's was "deeply disappointing". He said that the justices who joined the majority opinion should be "absolutely ashamed" and lacked the courage to "do the right thing".

The President then announced that he would impose a temporary 10% global tariff under the Trade Act of 1974, a different law from the one that the court said did not grant him tariff authority. It is not clear if this tariff replaces all existing tariffs, including the current 30% tariffs on South African exports.

Prospects for the coming week

This coming all eyes will be on the South African National budget that will be delivered by Finance Minister Enoch Godongwana on Wednesday. The Minister will seem to have less of a daunting task than last year, with some manoeuvring ground that was not available for him during previous years after the Covid 19 pandemic.

• The economy is expected to have grown in 2025/6 at 1.8%. This is more than the expected forecast of 1.6% envisaged in last year’s budget.
• Global economy is expected to grow at 3.3% in 2026 and is higher than was expected during the Medium-Term Budget Policy Statement (MTBS) in November 2025.
• Increases in gross tax revenue for 2025/26 may be much higher that is projected R19.7 billion envisaged in the MTBS due to the sharp increase in precious metal prices during the latter part of the fiscal year. Latest estimates show that an ongoing commodity rally could boost the government’s tax intake by R20 billion per annum over the next two years.
• South Africa’s gold and foreign reserves recorded a new record high of $79,85 billion in December 2025. In 2024/25, the government withdrew R150 billion from the South African Reserve Bank’s R500bn Gold and Foreign Exchange Contingency Reserve Account (GFECRA) to reduce borrowing and its debt-service costs. The current windfall in the growing gold reserves can be used again to help in increasing taxes and to reduce borrowing and debt services cost further.

Against these manoeuvring room of government, the crucial questions that the budget will deal with are:

• How will government reduce debt service cost that remains the biggest cost item on the budget.?
• Government remains committed to the balanced fiscal strategy. The consolidated budget deficit is expected to narrow to 3.4 per cent of GDP in 2026/27 and 3.2% by 2027/28. Is the government still on track?
• A primary budget surplus of 0.8% of GDP is expected for 2025/26 year. Will this continue this year and even move higher above 1.0%?
• It was envisaged last year that the government is adamant to bring down the national debt from 77.4% of GDP in 2025/26 to 75.9% in 2026/27 and 75.1% in 2027/28. Is that also still on track?

It is expected that no changes to the three main budget income items namely Company Taxes, Personal Income tax and Value added tax will be introduced.

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

*** The views expressed here do not necessarily represent those of Independent Media or IOL.

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