Discussing the current currency market news
Key takeaways:
Key concerns and events:
- Tariffs: President Trump announced tariffs that would essentially cover all countries and specifically mentioned 25% tariffs on imported cars. The announcement of initial tariff levels was expected on Wednesday, followed by auto tariffs the next day.
- Market Reactions: Global share markets were in a tailspin. Investors sought safe havens like sovereign bonds, the Japanese yen, and gold, which hit all-time highs. Risk assets were a genuine worry.
- Japan’s Nikkei saw a significant drop, especially in automaker stocks.
- MSCI’s broadest index of Asia-Pacific shares outside Japan and Chinese blue chips also declined.
- European markets and US stock futures indicated a downward trend, particularly in the automotive sector.
- The S&P 500 and Nasdaq futures also fell.
- Economic Concerns: Many economists are worried that tariffs will negatively impact the US economy and limit the Federal Reserve’s ability to cut rates due to rising inflation.
- Recession risks were seen as elevated, with probabilities of 40% by JPMorgan and 35% by Goldman Sachs.
- Analysts at Goldman Sachs anticipated reciprocal tariffs averaging 15% across all US trading partners.
- A key measure of core inflation rose more than expected, and consumer spending disappointed.
- Consumer sentiment in the US declined significantly in March, with respondents blaming Trump’s trade war and expressing concerns about rising unemployment. Two-thirds of consumers expected unemployment to rise in the next year, the highest reading since 2009.
- Central Bank Response: Bond investors appeared to anticipate a slowdown in US economic growth outweighing inflation, leading to expectations of Federal Reserve rate cuts. The outlook for rates was expected to become clearer with upcoming speeches from Fed Chair Jerome Powell and other Fed officials.
- International Reactions: The European Union was reportedly ready to respond with its own tariffs but was also considering offering concessions to Trump.
- Impact on Specific Sectors and Countries:
- Automaker stocks suffered globally due to the threat of auto tariffs. South Africa’s major car exporters to the US (BMW, Mercedes, Volkswagen) could face sales declines if the African Growth and Opportunity Act agreement is cancelled. Vehicles account for a significant portion of South Africa’s exports to the US.
- The South African Rand weakened due to concerns about the national government’s budget. While the JSE All Share Index had performed well recently, the industrial and financial indices were expected to be under pressure due to the weaker rand, while the precious metal index was expected to remain strong.
- Inflationary Pressures: Tariffs are expected to contribute to higher vehicle prices for consumers, potentially adding significantly to the cost of both imported and domestically produced vehicles. This is projected to elevate overall inflation rates, potentially complicating monetary policy decisions.
- Upcoming Data: Investors were awaiting the US non-farm payrolls report for March, with expectations of a lower increase in jobs and a higher unemployment rate, which could further amplify recession worries. Surveys on factories and services, along with figures on trade and job openings, were also due.
In summary, the sources depict a global market downturn and increased economic uncertainty spurred by President Trump’s escalating trade policies, particularly the threat of widespread tariffs. Concerns about a potential recession and rising inflation are prominent, leading investors to seek safe-haven assets and prompting international responses and worries about specific industries and national economies.