US President Donald Trump remained committed to his planned tariff protocol, which curbed risk-on sentiment and weighed heavily on equities (S&P 500 Index: -6.2%). The previously promised 25% tariffs on Canadian and Mexican goods were implemented, as was the doubling of the levy on goods imported from China to 20%. This was met with retaliatory measures from Canada and China. As the month progressed, further tariff announcements were made on steel and aluminium products and on imported vehicles and automotive components. The messaging from the White House has not been consistent, however, and President Trump also recently noted that further upcoming tariffs will “probably be more lenient than reciprocal” and that he would consider lowering tariff rates imposed on China. Trump added there would be exceptions to some of the tariffs imposed, with the possible exemption of certain nations or blocs, but "not too many exceptions”. At the same time, surveys showed that US consumer confidence fell to the lowest level in four years in March amid concerns about higher prices and the economic outlook.
The US Federal Reserve (Fed) kept interest rates on hold in March (in line with expectations), extending the pause in its rate-cutting cycle that began in January. Policymakers noted that uncertainty around the economic outlook has increased but it is still anticipated that interest rates will be cut by approximately 50bps this year, the same as in the December projection. Fed Chairperson, Jerome Powell, stated that the Federal Open Market Committee (FOMC) is well positioned to respond to any changes in the economy and is in no hurry to adjust rates as it awaits further clarity on the impact of the new administration’s policies.
The Eurozone (Euro Stoxx 600 Index: -2.3%) was not immune to President Trump’s widespread tariff hikes. The European Union (EU), however, postponed the levying of planned retaliatory tariffs on US goods until mid-April, noting that further discussions were required. The European Central Bank (ECB) lowered its three key interest rates by 25bps in March, as expected, bringing the total cuts during this cycle to six, or 150bps so far. The ECB shifted its tone in its statement to slightly more hawkish by noting that “monetary policy is becoming meaningfully less restrictive” after its previous statement said that “monetary policy remains restrictive”. The monetary authority added that it remains data-dependent and will adjust its policy to ensure inflation stabilises around its 2% medium-term target. Investors slightly pared back their expectations of further rate cuts, with the swap market still implying two 25bps cuts but only fully pricing in one cut and lowering the probability of a second cut.
On the local front, the JSE All Share Index (+4.7%; USD terms: +6%) delivered a robust performance despite the geopolitical turmoil spreading through global markets, with the “postponed” Budget Speech being one of the key events on home turf. Finance Minister, Enoch Godongwana, delivered what was clearly a “compromise budget” against a backdrop of substantial economic risks – including fiscal weakness, external volatility, and pressing social needs. However, the budget presented was largely neutral for bonds and equities. The South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) also garnered attention after keeping the repo rate unchanged at 7.5% at its March meeting. The accompanying statement this month noted that global economic instability and domestic uncertainties necessitated a cautious approach going forward. Currently, our expectation is that the SARB will still cut interest rates by 50bps this year, although the timing remains uncertain.
Outlook
Local
- The new US administration’s imposition tariffs and retaliation by trade partners threatens to broaden the trade war as the year progresses. There is still a possibility of negotiations and concessions that could limit the extent of trade disruption, but policy uncertainty and gyrations across financial markets will weigh on emerging markets.
- In addition, the loss of humanitarian aid will exacerbate the vulnerability of reliant countries. In such an environment, the lack of agility in identifying market opportunities and forming new trade relationships will prolong the impact of trade disruptions.
- SA’s ability to attract and compete for new trade partners across various product markets is anchored on addressing structural constraints and creating a conducive operating environment.
- Treasury’s emphasis on infrastructure investment upholds investment as a driver of medium-term growth, however, tax increases may weigh on consumer spending growth. We still see growth breaching 2% in 2027, but downside risks to near-term growth are material as sentiment, activity, and employment could be affected by shifting global dynamics.
- Inflation should remain muted, averaging below 4% this year before rising towards the midpoint over the medium term. In line with this, and with further Fed rate cuts expected from the middle of the year, the SARB should still have space to cut interest rates to 7% by end-2025. We currently anticipate 25bps cuts in May and November. Nevertheless, the outlook is vulnerable to unfolding global risks.
Global
- Proposed policy changes by President Trump (tariffs, taxes, deportations, deregulation) are increasing uncertainty in global markets and economies. Implementation (or not) of these policies will dictate the direction of markets over the next few months. Global economic uncertainty indices are making new highs.
- US growth expectations have started to turn negative. Soft data, such as business and consumer expectations, have deteriorated over the last month. Economic data continued to disappoint in March and the Citi Economic Surprise Index remained negative. Our house view is for US growth to underperform consensus in 2025 slightly.
- This month both CPI and core CPI in the US surprised slightly to the downside, coming in at 2.8% and 3.1%, respectively. This is still some way off from the 2% target of the Fed. Shelter inflation and core services should continue to trend lower; causing overall inflation to move down towards target, but risks remain that inflation proves ‘stickier’ than expected.
- The Fed’s interest rate cutting cycle that started in September 2024 has come to a roadblock as they paused again at its latest March meeting. The FOMC updated the post-meeting statement to note that “Uncertainty around the economic outlook has increased”. The uncertainty of potential policy changes (like tariffs and deportations) should make them more data-dependent going forward.
- In emerging markets, Chinese macroeconomic data held steady in March. At this month’s NPC meeting, authorities announced a GDP target of around 5%, CPI around 2% (reduced from 3%), more proactive fiscal policy support (deficit of 4%), as well as continued monetary policy support. We would expect additional announcements as the US introduces more trade tariffs on China.
- The US dollar had a negative month as positioning got extended and poorer US economic data versus Europe caused some positions to be unwound. The expectations are still for a firmer US dollar as (when) tariffs are implemented. Reciprocal tariffs are expected to be announced on 2 April.
- Gold continued with its remarkable run to new highs this month. Reasons include central bank buying, geopolitical tensions, uncertainty around policies, and investor appetite growing.
- Given all the above uncertainties, we are closely aligned to our strategic asset allocation benchmarks, with a slight defensive twist. We marginally favour fixed income over equities.
