💹 Major Currency Snapshot:
USDZAR: 18.87
EURZAR: 21.38
GBPZAR: 24.91
Introduction:
Global financial markets are currently navigating a landscape marked by uncertainty stemming from US trade policies and ongoing negotiations, particularly between the US and Japan. This environment has led to mixed performance in equity markets and a weakening of the US dollar as investors react to the evolving trade dynamics and potential economic impacts. Meanwhile, safe-haven assets like gold have seen increased demand.
Key takeaways from sources:
- Global Trade and Tariffs: Uncertainty surrounding tariffs imposed by the US, particularly by President Trump, continues to create fragile market sentiment. Despite this, the commencement of trade negotiations between the US and Japan has offered some signs of hope and revived risk appetite, especially in beaten-down, trade-sensitive markets. Trump himself declared “big progress” in these discussions. However, Federal Reserve Chair Jerome Powell has warned of the risks of slowing growth and rising prices due to these tariffs. The evolving trade policies under the US are a key focus for investors awaiting potential new agreements with trade partners. The erratic implementation of trade levies has previously hampered the dollar, leading investors to dump US assets. Concerns about tariffs are also impacting specific industries, with Dutch chipmaker ASML warning that tariffs are increasing uncertainty around its long-term outlook.
- Currency Markets: The US dollar has been under pressure, looking set to notch a fourth straight weekly loss as tariffs deter investors. This uncertainty has led to investors previously dumping US assets. However, the dollar did firm slightly against the yen after US-Japan trade talks did not address currency issues. The yen had previously strengthened in anticipation of a possible agreement to strengthen it against the dollar. The safe-haven Swiss franc has significantly appreciated. The euro has seen gains against the dollar and is set for a fourth straight weekly rise, even with an expected rate cut from the European Central Bank. Analysts at Citi suggest the world is “overweight U.S. assets” which could continue to weigh on the USD, forecasting the euro to potentially reach $1.20.
- Equity Markets: Asian equities showed mixed performance. Japan’s Nikkei rose following the start of US-Japan trade talks. Technology shares experienced volatility, with a bruising session after warnings from Nvidia and ASML about the impact of trade tensions and export restrictions. The earnings forecast of Taiwan’s TSMC is being closely watched to gauge the health of the chip industry. Overall, markets are reacting to the interplay of trade talk optimism and concerns about the actual impact of tariffs on economic growth and corporate earnings.
- Safe-Haven Assets: Gold prices have repeatedly reached record highs, driven by safe-haven flows amid the prevailing uncertainty.
- Federal Reserve Policy: Federal Reserve Chair Jerome Powell indicated that the Fed would wait for more economic data before making any changes to interest rates, facing a dilemma where tariffs could cause both economic weakness and inflation.
- South African Markets: Foreign investors have been significant net sellers of South African equities, continuing a decade-long trend. This selling pressure intensified recently due to fears of the Government of National Unity collapsing, adding to existing concerns about South Africa’s declining economic performance, deteriorating state finances, and political uncertainty. Global uncertainty, including US tariffs, has also contributed to investors moving away from riskier emerging market assets like South African stocks and towards safe havens. The returns of the JSE All Share Index have barely kept pace with inflation over the past decade, making it an unattractive investment for many.
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