Trump is back in business, while markets breathe a sigh of relief with no immediate tariff action

This is an extract from the Weekly Review of 24 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

Donald Trump is back in the White House and immediately found a pen to sign a flurry of executive orders on the first day. The orders and measures Trump spoke about in speeches covered a range of topics, including migration, plans to ramp up production in the oil and gas sector, and an expansion of American territory. However, while promising (again) to overhaul the trade system, Trump made no actual changes to current trade regulations. This triggered a bit of a risk-relief rally in financial markets, helping the rand strengthen against the dollar. Trump did, however, refer to plans to impose tariffs of as much as 25% on Canada and Mexico by 1 February. Meanwhile, Europe was threatened with tariffs if it did not step up purchases of US oil and gas, but China initially escaped direct attention. Trump also said he would step up taxes, tariffs and sanctions on Russia if he does not “make a deal” to end the war in Ukraine.

Locally, there were some jitters triggered by President Cyril Ramaphosa signing the Expropriation Bill into law yesterday. However, this should, in principle, be no reason for alarm – see the reform tracker for more on this bill and updates on logistics and energy. Meanwhile, on the local data front, we saw more November high-frequency figures and December consumer inflation (CPI) data—see the domestic section. The CPI print, again, undershot expectations, with core inflation remaining particularly subdued. The lack of meaningful demand-side pressure on prices translates into a relatively benign inflation outlook for 2025, too – although there are plenty of (upside) risks to flag. For example, on the food price front, SA white maize prices rose above R7?000/tonne, which, if sustained (and experts think they will stay high through Q1), could impact the prices of grain-related food products later this year. Internationally, record-high cocoa and coffee prices will add to the pressure for some specific food and beverage categories. That said, generally, food price dynamics remain favourable. We are in the process of updating our quarterly forecast. Clients can expect to receive the summary of Economic Prospects and updated forecast sheets by early next week.

Global financial markets were generally relieved that there was no direct action on tariffs. Bond yields retreated while the dollar weakened a bit. US stocks experienced a ‘Trump bump’ while even European equities benefitted from the renewed bullish sentiment, with the Stoxx Europe 600 hitting a record high mid-week. Chinese stocks were a notable underperformer when Trump, later in the week, said he could impose 10% tariffs from next month. Following the faster-than-expected Q4 GDP print, China did not change its benchmark interest rates. This was the third consecutive month that rates were kept unchanged. The hope is that maintaining rates at the current level ?(rather than cutting to support the economy/lift inflation) would help stabilise the weakening yuan. The Chinese currency has been under pressure and could slide further if Trump follows through on his tariffs on Chinese imports.