Global Market Overview | February 2025

03 March 2025

written by the FNB Wealth and Investments Research team

Global markets delivered a mixed performance in February (MSCI World Index: -0.7%, MSCI Emerging Market Index: +0.5%), with heightened political and economic uncertainty sparking further volatility in the market. This was confirmed by the Global Economic Policy Uncertainty Index (GEPUI) that spiked to an all-time high, as well as the CNN Fear & Greed Index, another measure of sentiment, which deteriorated rapidly into “extreme fear” territory. This was driven by “aggressive” tariff announcements out of the United States (US), which, when combined with weaker sentiment and generally soft economic data, sparked concerns about the health of the US and global economy. Further volatility within the tech sector compounded the sell-off seen among risky assets. Emerging markets faired comparatively better, led by China (MSCI China: +11.5%) as an ongoing recovery within the region was complimented by an optimistic Artificial Intelligence (AI) outlook following the unveiling of DeepSeek at the end of January. 

Looking more closely at the US (S&P 500 Index: -1.3%), the world’s largest economy experienced a sell-off across the breath of the market with the tech sector (Nasdaq Index: -3.9%) leading declines amid a pull-back in the Magnificent Seven (Bloomberg Magnificent 7 Index: -8.7%) – Nvidia Corporation was in the spotlight most recently with its share price tumbling 8.5% after its latest earnings release was tagged as “good, but not great”. The broad-based weakness seen in the market was spurred on by uncertainty surrounding tariff implementation as US President Donald Trump continued to dominate the headlines with continued notable and unexpected policy intervention. Most recently, President Trump confirmed that the previously paused 25% tariffs on imports from Mexico and Canada will come into effect on Tuesday, 4 March, and that an additional 10% tariff on imports from China (an entirely new step) will also be imposed on this date, in addition to the 10% tariff introduced earlier in the month. In terms of interest rates and the Federal Reserve’s (Fed) path going forward, investors kept a watchful eye on US CPI figures which showed that the annual inflation rate edged up to 3% in January from 2.9% in December (and above market forecasts of a steady reading). The reading came after Fed Chairperson Jerome Powell noted that there was no rush to cut interest rates further. Fed Funds futures are pricing in two full rate cuts plus a 50% chance for a third cut before the end of the year (only one rate cut was priced in before the recent tariff announcements).

Across the pond, the recovery seen in Eurozone equities continued with the Euro Stoxx 600 Index returning 3.4% for the month. Additional flows into the equity market were spurred by generally upbeat economic data and earnings releases with soft inflation figures across the region supporting expectations for additional rate cuts by the European Central Bank (ECB). The minutes from the January policy meeting noted that policymakers deemed it safe to keep calling policy “restrictive”. Germany’s election was also a key event, with the outcome (a win for Friedrich Merz CDU/CSU bloc) being seen as favourable for markets amid a predicted pivot to increased spending and a more pro-business orientation.

On the local front, the 2025 National Budget Speech was postponed to 12 March by parliament due to a lack of agreement among parties in the Government of National Unity (GNU) on certain budget proposals, including a reported proposal for a 2% hike in the VAT rate. Despite this setback and the reintroduction of “temporary” load-shedding as well as geopolitical tensions with the US, the local bourse delivered a resilient performance with the All Share Index ending the month flat (USD terms: -0.3%). In addition, the World Bank raised its GDP growth forecast for South Africa (SA), which provided further support.

Outlook

Local

• Global economic policy remains uncertain, with implications for sentiment and economic outcomes. The new US administration is challenging not only foreign trade and defence policy but also humanitarian aid, and this could exacerbate the vulnerability of low-income and emerging markets. While the direct impact on SA is not expected to be extensive, the indirect impact of regional risks and weaker sentiment could challenge our outlook.
• For now, we continue to see inflation remaining below 4% in 1H25 before rising above 5% in 2H25. However, average inflation should remain below 4.5%, possibly lower than in 2024, continuing to provide space for reduced monetary policy restrictiveness.
• We think that interest rates could become neutral at 7% by year-end, but the risks of a slower cutting cycle or less cuts remain considerable. This is as inflation risks are tilted upwards – we could see a faster normalisation in services inflation as demand improves, higher municipal water costs, a weaker rand, and any hike in VAT would add to inflationary pressure. Furthermore, a delayed cutting cycle in the US would have implications for the speed of adjustment locally.
• That said, a softer cost of living and rising confidence in the baseline forecast should continue to support spending and investment going into 2025. This is while activity improves in the productive sectors, allowing for an acceleration of growth towards 2%.
• Structural reforms and the strengthening of public institutions remains pivotal to improving SA’s risk premium and sovereign ratings, lowering structural inflation and interest rates, as well as securing fiscal stability over the longer term. As things stand, a sovereign ratings upgrade is possible in the near term.

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.
• US growth continued to show resilience as 4Q24 GDP was still above potential growth despite monetary policy remaining restrictive. Growth for 2024 was 2.8%, and consensus for 2025 growth is 2.3%. However, economic data disappointed largely in February and the Citigroup Economic Surprise Index (CESI) went negative for the first time in 2025. Our house view is for US growth to slightly underperform consensus in 2025.
• In the US this month, both CPI and core CPI surprised to the upside, coming out at 3% and 3.3% 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 with a pause at the latest January meeting. Powell said that rate-setters “do not need to be in a hurry to adjust our policy stance”. Growth is strong and the US is close to full employment. 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 February. GDP for 4Q24 surprised at 5.4% (expected 5%), taking 2024 GDP to the targeted 5% level. Most of the stimulus announcements to date have been around monetary policy (lower interest rates) and measures to stop the property market from collapsing further. Fiscal policy is what is needed to structurally get China out of their deflationary slump and to restore confidence. Fiscal policy announcements are expected over the next few weeks; the magnitude of which will dictate market movements.
• The US dollar had a soft 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 if (when) tariffs are implemented.
• 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 slightly favour fixed income over equities.