Weekly economic wrap: US tariffs come into effect, rand suffers, but recovers

The Citizen

3 days ago

With the US tariffs poised to hit this week, the rand fell to its lowest against the dollar but recovered by the end of the week.
In what would normally would have been a quiet week on the economic front, the implementation of the Trump tariffs this week took all the headlines, especially since South Africa is stuck with a 30% tariff on goods exported to the US.
Tracey-Lee Solomon, economist at the Bureau for Economic Research (BER), says increased bets on a Fed rate cut supported the gold price last week. 'Lower interest rates tend to boost non-yielding assets like gold, which is also benefiting from safe-haven demand amid rising concerns over a US economic slowdown.
'Recent data showed services sector stagnation, weak job growth and slowing consumer spending, partly linked to tariff-related pressures.'
On the currency front, she says, broad US dollar weakness amid economic concerns helped the rand close stronger this week. The rand gained 1.7% against the dollar and 0.2%/euro and 0.4%/pound sterling.
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Solomon also points out that oil prices decreased after OPEC+ agreed on Sunday to increase oil production by 547 000 barrels per day for September, lifting fears of a global oversupply at a time when the US-led trade war is weighing on economic growth and energy demand. The potential ceasefire between Russia and Ukraine also put downward pressure on the oil price.
Oil and gold react to US tariffs
Bianca Botes, director at Citadel Global, says Brent crude is hovering near $66/barrel and is set for its worst week since late June as optimism around a potential Trump–Putin summit eased supply concerns.
'Sanctions on Indian oil imports from Russia and hints at broader tariffs on Chinese goods kept trade risks alive but expectations of higher output from the OPEC+ and slower demand growth weighed heavily.'
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Gold eased to about $3.380/ounce as traders took profits, although it remained on track for a second consecutive weekly gain, she says. 'Support came from the softer US economic outlook, tariff-related uncertainty and ongoing central bank purchases, including China's ninth straight month of buying. New US import duties on gold bars tightened supply prospects, adding a modicum of support to prices.'
Rand looking much better despite dipping with US tariffs
Botes says the rand strengthened to below R17.80/$, benefitting from a softer greenback and hopes for Fed cuts, although sentiment remained fragile as South Africa prepares for steep US tariffs on a wide range of its exports.
Busisiwe Nkonki and Isaac Matshego, economists at the Nedbank Group Economic Unit, say the rand benefited from a broadly weaker US currency. 'Confirmation that president Cyril Ramaphosa had a telephone conversation with US president Donald Trump on Wednesday also buoyed the local unit. The rand was trading around R17.72/$ on Friday afternoon, from R18.05 last Friday.
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They also believe that the oil price fell over the week after Trump indicated that he would be meeting with Russian president Vladimir Putin, although Putin has not honoured many of the US demands for a ceasefire with Ukraine.
'Higher prospects of the end of the Russia-Ukraine war have raised hopes of oil supply, pushing the oil price to $68.50 per barrel this morning. The gold price is higher at around $3 401 an ounce after reports that the US will reclassify gold imports, resulting in import tariffs being levied on 1 kilogram gold bars.
PMIs are still looking up despite US tariffs
The Absa Purchasing Managers' Index (PMI) recorded its first expansion in nine months, increasing by 2.3 points to 50.8 in July. Among the sub-components, new sales orders increased significantly, up 9.7 points to 55.9.
Nadia Matulich, economist at the BER, says this reflected stronger domestic and international demand. The supplier deliveries index also ticked higher, driven by the rise in orders, although some suppliers noted that regulatory issues had become significant supply chain bottlenecks.
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Manufacturers remained cautious amid ongoing global uncertainty. While business activity improved by 5.2 points, it remained in contractionary territory, which likely contributed to the decline in the employment index, down 6 points to 43.7. The purchasing price index rose again, pointing to mounting cost pressures.
'While current conditions suggest some resilience, the longer-term outlook has softened. The index tracking expected business conditions in six months fell from 62.5 to 56.4,' she says.
S&P PMI in expansionary territory for the third month
The S&P Global South Africa PMI, which includes the services sector, also edged higher in July, increasing from 50.1 to 50.3 and marking a third consecutive month in expansionary territory.
Growth was supported by new sales orders and employment, with respondents reporting an uptick in client activity and a mix of both permanent and temporary hires. Matulich says the demand increase was driven primarily by domestic sales, with exports falling for the fourth straight month.
'Output remained broadly unchanged, but firms noted stabilising supply chains. This was reflected in higher purchasing, lower inventories and reduced backlogs. Input costs accelerated to a three-month high, but firms remained cautious about passing these costs on to consumers. Notably, business expectations over the next 12 months improved, recovering from a near four-year low in June.'