PFS Market Sentiment Podcast – ZAR Takes a breather, Trump Tariff pause, China Not Exempt

💹 Major Currency Snapshot:

USDZAR: 19.27
EURZAR: 21.14
GBPZAR: 24.78

Introduction:

On Thursday, markets experienced a mix of reactions following U.S. President Donald Trump’s announcement of a temporary pause on tariffs for many countries while simultaneously increasing tariffs on China. This development came after a period of significant market volatility triggered by escalating trade tensions and the initial imposition of hefty duties. Investors grappled with the implications of these shifting policies and the ongoing trade dispute between the United States and China.

Key takeaways from sources:

• Trump announced a temporary 90-day pause on newly imposed tariffs for many countries, citing requests for negotiations, while simultaneously increasing tariffs on China to 125% due to a perceived lack of respect and China’s retaliatory tariffs. This created a mixed reaction in the markets, with an initial surge of relief followed by renewed concerns over the escalating trade war with China and the long-term implications of the Trump administration’s trade policies.
• Global shares initially surged and a bond selloff stabilised following the announcement of the tariff pause, with European and Asian markets showing significant gains. However, U.S. stocks took a breather after their overnight rally as investors assessed the situation. The U.S. dollar also initially jumped but then lost steam against safe-haven currencies like the yen and Swiss franc.
• The increased tariffs on China heightened trade war tensions, with China having already raised tariffs on U.S. goods to 84% and imposed restrictions on some U.S. companies. Despite this escalation, some investors initially focused on the 90-day window for other countries, hoping it would prevent a complete halt to global trade and allow for supply chain adjustments.
• The South African rand experienced significant volatility, hitting an all-time low due to trade war concerns and domestic political uncertainty, but then recovered sharply following the announcement of the tariff pause for most countries, which included South Africa. South African businesses, particularly those relying on exports to the U.S. in sectors like agriculture, textiles, and electronics, gained some “breathing space” from the paused tariffs.
• The flip-flopping of the Trump administration’s tariff plans perplexed investors and led to questions about the long-term credibility of its economic policies. Some analysts suggested that the pause was a result of the U.S. President reacting to potential recession risks, market downturns, and political backlash. The U.S.’s international reputation was seen as being eroded, and there was less confidence in the U.S. government among investors.
• A previous steep selloff in U.S. Treasury bonds showed signs of easing, although concerns about sticky inflation, the Federal Reserve’s stance, potential foreign buyer boycotts, and an illiquid Treasury market remained factors influencing bond yields. Fed policymakers had previously indicated they were unlikely to quickly cut interest rates due to expected inflationary effects of tariffs.

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Sources referenced: