After days of market volatility sparked by the Israeli-Iranian conflict, risk sentiment stabilised on news that President Trump will host Iran for nuclear negotiations in Oman next month. This de-escalation has helped ease fears of a broader military conflict and allowed investors to refocus on key economic events and data.

Despite the diplomatic progress, markets remain wary. The geopolitical backdrop is still fragile, and any misstep in talks could reignite tensions. Still, in the short term, a period of calm has restored appetite for riskier assets, including EM currencies like the ZAR and global equities.

SA’s Domestic Picture: Confidence Falters, Policy Questions Rise

Consumer Confidence Plummets

The Q1 consumer confidence index fell sharply by 20 points, marking one of its steepest drops in recent history. The decline reflects rising anxiety about household finances and future income prospects, particularly in a high-unemployment environment with slow economic growth.

This collapse in sentiment casts doubt over the sustainability of consumer spending, which has already been weak. Retail sales are likely to reflect these headwinds in the coming months, with few near-term catalysts to spark a turnaround.

Producer Price Inflation Remains Low—For Now

April’s Producer Price Index (PPI) came in at just 0.5% y/y, held down by low input costs, especially fuel. However, inflationary risks are re-emerging. Brent crude is trading around $77/barrel, and any further geopolitical flare-ups or OPEC+ policy changes could pressure prices higher, translating into higher logistics and manufacturing costs in SA.

PIC Investments Face Oversight Scrutiny

Finance Minister Enoch Godongwana has ordered an investigation into the Public Investment Corporation’s (PIC) unlisted investment portfolio, worth an estimated R170 billion. The review follows allegations of opacity and mismanagement, with mounting political pressure to ensure accountability for state-managed assets. This development has major implications for fiscal transparency and long-term investor confidence.

ZAR Advances on Softer Dollar and Fed Speculation

The rand rallied to 17.68/USD, continuing a firming trend supported by:

• Lower US Treasury yields,
• Broad-based dollar weakness, and
• Renewed appetite for emerging market assets.

Adding fuel to the ZAR’s advance was speculation that President Trump may seek to replace Fed Chair Jerome Powell, stoking fears of politicisation at the Federal Reserve and unsettling the dollar.

Despite SA’s domestic challenges, global conditions, especially the weaker USD and stabilising risk sentiment, are helping the ZAR outperform peers. Still, analysts caution that extended ZAR gains could be vulnerable if local economic data disappoint or if Middle East tensions resurface.

Bond Market Extends Rally Amid Dovish Shift in Rate Expectations

South African bonds remain in demand, buoyed by the strengthening rand, subdued inflation outlook, and attractive yields. Tuesday’s vanilla bond auction saw solid participation, with long-dated maturities favoured by investors seeking duration.

Meanwhile, FRA (Forward Rate Agreement) markets are increasingly pricing in a 25bp rate cut by the SARB before year-end. The 3×6 FRA vs 3-month JIBAR spread narrowed to -31bp, indicating growing conviction of easing, even if two cuts remain unlikely unless inflation consistently trends below 3%.

Commodities Mixed as Markets Weigh Supply and Policy

Oil Market Eyes OPEC+

Crude prices stabilised after sharp swings earlier in the week. While US crude inventories fell to an 11-year low, traders are now turning their attention to the upcoming OPEC+ meeting. There’s speculation that Saudi Arabia and allies may adjust output targets to counter volatile pricing and secure market share.

Soft Commodities Rebound on Weather and Demand Signals

Raw sugar prices rebounded after touching a four-year low, supported by India’s strong monsoon forecasts, which are expected to boost cane yields. Coffee and cocoa also recovered, helped by favourable Brazilian weather and robust global demand—especially from European and Asian importers.

Metals Boosted by Supply Tightness and Fed Bets

Gold held above $3,335/oz, benefiting from a weaker dollar and growing investor demand amid persistent macro uncertainty. Meanwhile, copper prices surged to $9,749/ton on the LME, up for the fifth straight session.

Goldman Sachs forecast that copper may exceed $10,000 by August, citing strong demand for electrification and tight supply, particularly from underperforming mines in Chile and Peru.

Key Data Ahead: Market Awaits Durable Goods, Inflation Metrics

The next critical macro test arrives with the release of US durable goods orders and the Fed’s preferred inflation measure—the core PCE deflator. A soft print could cement expectations for September rate cuts, while any upside surprise could reignite hawkish concerns.

In South Africa, local focus turns to consumer confidence, PPI inflation, and the SARB’s quarterly bulletin for Q1, all of which could sway market expectations around fiscal risk and monetary policy direction.