TRUMP TAKES AIM AT SA AS LOCAL DATA DISAPPOINTS AND FOCUS SHIFTS TO NEXT WEEK’S BUDGET

This is an extract from the Weekly Review of 14 February 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 Tracey-Lee Solomon

Another eventful week started with US President Donald Trump’s accusations of human rights violations against white farmers in SA. This accompanied a freeze of all aid towards SA and a promise to allow Afrikaners to apply for refugee status in the US – later in the week, the US said they could be ‘resettled’ in the US. Details on what exactly this means and how it would work remain sparse. On the data front, Stats SA figures showed a decline in both mining and manufacturing production in December and across the fourth quarter. With fourth-quarter GDP figures set for release in March, it is already clear that both sectors will weigh on overall growth. The below-50 January Absa PMI suggests that the factory sector remained under pressure at the start of 2025.

Adding to the economic concerns, the SONA debate sparked some frustration. After promising noises about more agreement among the GNU parties the week before, Health Minister Aaron Motsoaledi denied reports of a deal between the ANC and DA to preserve private medical aid schemes as part of the NHI rollout. This highlights the ongoing need for greater local policy clarity at a time of increased global uncertainty.

While some confusion remains, the US embassy in SA has provided more clarity on PEPFAR – the US President’s Emergency Plan for AIDS Relief – which faced uncertainty following Trump’s executive order halting aid to SA. Given that PEPFAR funds 17% of SA’s HIV/AIDS programme, its potential suspension has raised serious concerns. This week, the US embassy confirmed that PEPFAR activities will resume under a limited waiver granted by US Secretary of State Mark Rubio in January. Initially, only activities covered under the waiver would restart with each agency following its own legal process for resumption; later, it was said that all activities could resume.

On the global monetary policy front, US Fed Chair Jerome Powell's congressional testimony drew significant attention. Powell reaffirmed that the Fed sees no immediate need to adjust its policy stance, a position supported by robust economic data. The labour market remained strong, with unemployment edging lower and hourly earnings rising. In addition, jobless claims fell in early February. Meanwhile, consumer inflation unexpectedly accelerated in January, further above the Fed’s 2% target. However, Powell cautioned against overreacting to a single month of data, emphasising that restrictive policy needs time to bring inflation down.

On Thursday, the January producer inflation report showed a larger-than-expected increase, though some core PCE components (the Fed’s preferred inflation measure) rose less than CPI suggested, indicating that the upcoming core PCE could undershoot expectations. Powell’s remarks and the latest data suggest that policy changes remain on hold for now, with the Fed prioritising patience as it assesses inflation trends.

Conversely, the Reserve Bank of India (RBI) cut its policy rate by 25 basis points (bps) ?on Friday. This was after headline CPI fell for the third consecutive month and by much more than expected. With another rate cut anticipated in April, India could find itself in a relatively strong position – provided it stays out of Trump’s crosshairs. On Thursday, the Indian President met with Trump to discuss trade. While the two leaders have had a good relationship in the past, Trump has previously criticized India as a 'very big abuser' of tariff disparities, and the US president has promised to implement “reciprocal tariffs”.

Trump’s second term began with a flurry of activity, wasting no time in reshaping US foreign and economic policy whether necessary or not (e.g. Gulf of America). Following controversial comments on how to achieve lasting peace in Gaza, his attention turned to Ukraine this week. In a significant move, after having spoken to Russian President Vladimir Putin, Trump signalled a willingness to negotiate Ukraine’s future without Ukraine or the EU’s involvement. He later spoke with Ukrainian President Volodymyr Zelensky. While Trump did not give specifics, his Defence Secretary, Pete Hegseth, made the administration’s position clear at NATO headquarters. Hegseth stated that the US would not provide troops or aid to enforce any truce. He also dismissed a return to Ukraine’s pre-2014 borders as unrealistic and ruled out NATO membership for Ukraine. European NATO members have long spoken about a path to join NATO for Ukraine. These developments pose serious challenges for Europe, which now faces the daunting task of filling the military void a US withdrawal would create. Some estimates suggest defence spending would need to rise to 5% of GDP, more than double NATO’s 2% target. Additionally, allowing Russia to retain seized territory could embolden Moscow and other nations with expansionist ambitions.

Meanwhile, Trump escalated his trade war tactics, raising tariffs on steel and aluminium imports to 25% (up from 10%) and eliminating all country—and product-specific exemptions. The measures take effect on 4 March (for now). Yesterday, Trump announced a plan to impose reciprocal tariffs on countries that tax US imports for the sake of 'fairness'. The tariffs would match higher foreign duty rates and counter non-tariff barriers like regulations, subsidies, and exchange policies. The programme, which, like many of Trump's plans, would serve as a negotiation tool, would start with countries with which the US runs a large trade deficit.?

Sporadic US policy announcements have once again propelled the gold price to a record high, inching closer to the $3 000/oz mark. Typically, high interest rates dampen gold’s appeal as a non-yielding asset, and the Federal Reserve’s "higher for longer" stance would be expected to restrain the rally. However, persistent market uncertainty – exacerbated by the Trump administration’s shifting tariff policies and unpredictable timelines – continues to drive demand for safe-haven assets.? Elsewhere, US stocks declined, while 10-year Treasury yields climbed 10bps to 4.6%. SA’s 10-year bond yield followed suit, rising 11bps. Meanwhile, the JSE Alsi ended the week on a positive note. Gold mining companies have benefitted from this prolonged surge in the gold price.

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