Markets Cautiously Optimistic as Powell Holds Ground on Rate Cuts

Fed Chair Jerome Powell has reaffirmed a “wait-and-see” stance on interest rates, stressing that more data is needed before adjusting policy in response to new tariffs. Despite political pressure from President Trump for swift cuts, Powell’s conservative tone has prompted markets to reassess their expectations. The Fed continues to weigh a cooling labour market, as signalled by weaker JOLTS data, against sticky inflation in the Eurozone. Meanwhile, Eurozone CPI rose in line with forecasts, although core inflation remains muted, reinforcing expectations for ongoing ECB monetary easing.

SA Economy Shows Pockets of Resilience

Vehicle Sales Surge Again

South Africa’s motor industry recorded another strong month, with total vehicle sales climbing 18.7% y/y in June, buoyed by strong growth across commercial and passenger segments. This continues a robust first-half performance, aided by two-pot pension withdrawals, imported vehicle affordability, and low inflation. However, the report also flags that base effects are helping exaggerate gains. Export numbers were strong as manufacturers ramp up activity ahead of the 9 July expiration of a temporary tariff reprieve.

Manufacturing PMI Improves but Still Contractionary

Absa’s PMI rose to 48.5 in June from 43.1 in May, suggesting a less negative outlook. ETM’s PMI also showed an uptick, although both remain below the neutral 50 mark. Analysts warn that the broader trend of deindustrialisation still weighs heavily on manufacturing, and sustained recovery hinges on progress with Operation Vulindlela and clearer policy direction.

ZAR Strengthens on SARB Inflation Target Shift

The rand broke below 17.60/USD, boosted by speculation that the SARB could adopt a lower 3% inflation target, bringing SA in line with global EM peers. This signals tighter inflation control and could support long-term rand strength. A firming ZAR has made short-USD positions painful, potentially prompting repatriation of offshore investments, adding further tailwinds. With geopolitical and tariff uncertainties lingering, the outlook for the ZAR remains constructive, especially if FATF removes SA from the greylist later in 2025.

SA Bonds Rally on Inflation Hopes and Strong ZAR

SA bonds continue to outperform amid ZAR strength and prospects of structural inflation reduction. Yields are sliding, with the SAGB 10-year now at 9.07%, a drop of over 60bps YTD. The FRA curve reflects bets on a rate cut within the next two MPC meetings, though markets doubt a second cut will be feasible without inflation trending firmly below 3%. Globally, divergent central bank signals dominate, with the ECB and BoE hinting at easing, while the Fed remains cautious.

Commodities Mixed: Gold Soars, Copper Surges, Sugar Slumps

Gold and Base Metals

Gold held steady around $3,340/oz, driven by fiscal stimulus expectations, central bank demand, and a weaker USD. Meanwhile, copper hit $10,000/ton, spurred by stronger Chinese demand and trade truce optimism between China and the US.

Softs and Energy

Oil held around $67 Brent, as investors weighed ceasefire news from Gaza and US inventory shifts. Sugar prices plunged to a 4-year low on surplus expectations and weak demand, while coffee also declined. Despite harvest acceleration in Brazil, production lags remain due to earlier rainfall disruptions.

Macro Update: Trump Doubles Down on Tariffs, Labour Market Cools

President Trump confirmed he will not delay the 9 July tariff hike deadline and is targeting Japan for unfair trade practices, particularly in autos and rice. Markets reacted negatively to the uncertainty, with volatility indices climbing. Meanwhile, the US labour market continues to cool. ADP data shows private sector job creation slowing to just 37,000 in May, the weakest in two years. Forecasts suggest a rebound to 110,000 in June, though still well below average. This reinforces expectations for a softer employment trend going into H2.