QUIET DOMESTIC WEEK WITH GLOBAL EYES ON US INFLATION AND A CEASEFIRE DEAL IN GAZA

This is an extract from the Weekly Review of 17 January 2025. The full Weekly can be found here (for free, but sign up if you want to receive notifications of new editions and other BER publications)

The Week in Perspective written by Lisette IJssel de Schepper

It was a very quiet domestic data week, while global market participants zoomed in on US inflation data following last week’s solid US jobs report. There was positive news about Israel and Hamas agreeing upon a ceasefire deal for Gaza. The phased deal is largely similar to what has been on the table since May, but circumstances have changed since. However, while the promise of less unrest in the Middle East would normally contribute to a decline in oil prices, the imposition of tougher sanctions on the Russian oil industry pushed up the oil price instead.

Following encouraging reports of a deal being “closer than ever” through the week, it was confirmed on Wednesday that Hamas and Israel agreed on a ceasefire deal for Gaza. While Israel has warned some details still need to be agreed upon, it should come into effect on Sunday. Very simply put, the deal would be structured in phases. The first phase would allow for the release of 33 hostages to Israel. If the truce holds, a partial withdrawal of Israeli forces and the release of Palestinian prisoners will follow, and Hamas and Israel will start a discussion about a second phase entailing a permanent ceasefire and a release of more hostages for prisoners. The final phase would involve the return of all the bodies of hostages who died and the reconstruction of Gaza under the supervision of Egypt, Qatar and the UN. Meanwhile, fighting between Russia and Ukraine continued to intensify this week. On Friday, the US imposed the most aggressive US sanctions yet on Russia’s oil industry, which pushed the Brent crude price to top $81/barrel. European countries are set to impose their sixteenth package of sanctions on Russia.

Earlier this morning, China released its Q4 GDP data. As we quipped last week, China generally ‘gets’ what it targets (around 5% in 2024), and with a faster-than-expected 5.4% y-o-y increase in Q4, full-year growth came in at 5%. This is a slight slowdown from 5.2% in 2023, but a touch faster than the consensus forecast. Chinese stock markets rose this morning.

Going against the rhetoric of late last week, Donald Trump’s economics team once again signalled that tariffs would be less extreme than promised during Trump’s campaign. Bloomberg News reported that the team was looking for a way to roll out high(er) tariffs with maximum impact (i.e. boost negotiating leverage) but minimal damage (i.e. to avoid a spike in inflation). One such way is to follow a stepped approach. Following the news reports, equity futures rose (later followed by rising stock prices when markets opened), the US dollar weakened, and Treasury yields declined. The dollar was particularly strong before the news broke, trading at a two-year high against major currencies following a boost from the solid jobs data last week Friday. Trump himself has not commented on this message and may, like he did last week, flip markets around by denying such an approach. Meanwhile, the lower-than-expected US core inflation print (headline came out in line with expectations – see the international section for more) pushed the dollar somewhat weaker still and contributed to US treasuries having their best day in months, with yields moving lower across the board. The depreciating dollar helped the rand, which strengthened to about R18.80/$, although the average for January so far is still about 60c weaker against the dollar compared to December.

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Editor: Lisette IJssel de Schepper Email: [email protected]

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