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The Citizen
3 days ago
- Business
- The Citizen
Weekly economic wrap: US tariffs come into effect, rand suffers, but recovers
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. ALSO READ: US tariff an existential threat for a third of metals and engineering sector 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.' ALSO READ: As if US tariff is not enough, more bad news for South African exporters 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. ALSO READ: Economic activity slowly improving although economic pressure persists 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. ALSO READ: US tariff of 30%: Rand weakest in 3 months, thousands of jobs in danger 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.'
The Citizen
01-08-2025
- Business
- The Citizen
Weekly economic wrap: all about the tariffs
The week had good and bad news for South Africans with a 25 basis point cut in the repo rate but a US tariff of 30%. It was a busy economic week, but everybody agrees that everything else was overshadowed by the latest US tariff announcement from the White House, which slapped a 30% tariff on South Africa that will apply from 7 August. Tracey-Lee Solomon, an economist at the Bureau for Economic Research (BER), says the unanimous decision of the Monetary Policy Committee (MPC) of the South African Reserve Bank (Sarb) to cut the repo rate by 25 basis points to 7%, bringing the prime rate to 10.5%, was also important. Then the White House announced its sweeping new trade policy in the early hours of Friday morning, with a tariff of 30% for South Africa. This had an immediate effect on commodity prices and the rand. Solomon says Brent crude traded above $73 a barrel after President Donald Trump threatened to impose tariffs on Indian exports and penalties for its Russian oil purchases, she says. 'Trump also warned of tariffs on Moscow unless a swift truce in Ukraine is reached, potentially triggering secondary sanctions on buyers of Russian crude. This move would likely result in more demand for non-Russian crude, lifting prices.' 'The rand weakened by 2.8% against the US dollar, weighed down by broad dollar strength and South Africa's failure to secure a more favourable trade deal with the US, which likely added to negative sentiment.' ALSO READ: US tariff of 30%: Rand weakest in 3 months, thousands of jobs in danger US Fed, in middle of US tariff chaos, did not change repo rate Bianca Botes, director at Citadel Global, says at the centre of the chaos stood the US Federal Reserve, which held rates unchanged at 4.25% to 4.5%. 'The South African Reserve Bank (Sarb) delivered a 25 basis point cut. This was not a bold or symbolic move by the Sarb; just necessary.' She also noted that gold prices consolidated near $3,292/ounce, ending the week 2% softer after the stellar dollar run although support persisted for gold as a defensive asset, despite the selloff this week, as central banks and safe haven seekers continue to find security in its glimmer. 'Brent crude remained above $71/barrel, supported by anticipation of new trade agreements and supply constraints, including tightening conditions in the diesel market. Risks from potential new tariffs and weak consumer data in some major economies capped stronger gains.' Busisiwe Nkonki and Isaac Matshego, economists at the Nedbank Group Economic Unit, also believe the rand came under renewed pressure after the US tariff announcement that he would impose a further 10% import tariff on the Brics countries and any other economy aligned with the grouping. ALSO READ: Repo rate cut not a surprise but very welcome Reserve Bank lowers repo rate to 7% as expected Damian Maart, an economist at the BER, says, as expected, the MPC decided to lower the repo rate by 25 basis points in a unanimous decision that brings the repo rate to 7% and the prime rate to 10.5%. 'A key takeaway from the MPC press conference was the announcement that future MPC decisions would be anchored around the lower bound of the 3-6% target band. Sarb governor Lesetja Kganyago noted that this was not an official change in the target, as it would mandate approval from the National Treasury. 'June consumer inflation was in line with the preferred rate, but the Sarb expects inflation to pick up over the next few months. Looking ahead, the Sarb's Quarterly Projection Model based on the newly adopted 3% target suggests five more cuts over the medium term, although the MPC is not beholden to the 3% inflation target. Nkonki and Matshego say ultimately the interest rate path will depend on how quickly the Sarb can calibrate inflation expectations and price setting throughout the economy around the lower target. Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole, and Koketso Mano, economists at FNB, say the MPC statement had few surprises. 'This repo rate cut highlighted the MPC's ability to focus on local dynamics given the limited impact of global volatility on the rand and, by extension, monetary policy.' ALSO READ: Good news for GDP: Manufacturing PMI reaches above 50 points, but employment levels still weak Producer price picked up in June According to Statistics SA, the producer price index (PPI) increased by 0.6% in June, up from 0.1% in May. The uptick was primarily driven by higher producer prices for food, beverages, and tobacco products, which increased by 4% and contributed 1.2 percentage points to overall producer inflation. In contrast, prices for coke, petroleum, chemical, rubber and plastic products declined by 4.7%, subtracting 1%. On a monthly basis, PPI rose by 0.2% in June. Nkonki and Matshego say the PPI outcome was slightly lower than their forecast of 0.8% but aligned with the market's expectations. 'The main driver of the rise was the 'food, beverages and tobacco products category, which rose by 4% with upward pressure coming from meat prices. Elsewhere, price pressures remained relatively subdued or fell further.' Matikinca-Ngwenya, Mkhwanazi, Sithole and Mano say they expect producer inflation to gradually rise in the second half of 2025 but remain benign, averaging around 1.2% this year.
