Weekly Review: Tariff Threats Resurface

Global markets were rattled this week by renewed trade tensions, with President Trump confirming the imposition of 25% tariffs on Japanese and South Korean imports from 1 August. Fourteen other countries - including South Africa - have been warned of similar hikes unless trade concessions are made. While the White House extended its original tariff deadline to August, the threats are already impacting sentiment. Analysts estimate that if fully implemented, these measures could raise the U.S. effective tariff rate by 1.4 percentage points. Commodity markets reacted quickly, with metals prices trading at a 25% premium to the London Metal Exchange, reflecting supply disruption concerns.

Adding to the uncertainty, the Federal Reserve Bank of Dallas warned that Trump’s stricter immigration policies could shave between 0.8% and 1.5% off U.S. GDP over the next few years due to lower labour force participation. U.S. economic data was mixed - mortgage applications rose 9.4% on the back of lower rates, but small business optimism fell to its lowest in over a year, underscoring the drag from policy volatility and trade uncertainty.

In other news, a senior Trump administration official claimed on Friday that Fed Chair Jerome Powell is "considering resigning" amid calls for a probe into whether he misled Congress about costly renovations to the Fed’s Washington headquarters. Bill Pulte, chair of Fannie Mae and Freddie Mac, who posted on X that he had "heard reports" of Powell possibly not completing his term - though no evidence was provided.

In the UK, GDP shrank by 0.1% in May after a 0.3% contraction in April, weighed down by declines in construction, manufacturing, and retail. Although house prices stabilised, activity in the housing market remains weak. Slowing wage growth may allow the Bank of England to cut rates further, with two more reductions expected this year.

Across Europe, economic signals also varied. German industrial production rose 1.2% in May, reversing April’s decline, but exports continued to fall. Eurozone retail sales dipped 0.7% month-on-month, while annual growth slowed to 1.8%. EU officials are working to secure a deal with the U.S. to limit tariffs to 10%, hoping to avoid further escalation. Meanwhile, investor sentiment improved slightly on the back of falling inflation and a more dovish stance from the European Central Bank.

Japan also felt the impact of U.S. trade policy, with tariffs on its exports set to rise to 25%. The yen weakened, and equity markets dipped as investors reacted to rising political risk ahead of the July 20 Upper House election. In economic news - wage growth disappointed, but household spending rebounded strongly, rising 4.7% year-on-year.

In China, factory-gate deflation deepened, with the Producer Price Index falling 3.6% - the biggest drop in nearly two years. While consumer prices edged up 0.1%, analysts caution this is more likely a result of stimulus than improved demand. Policymakers are expected to announce further easing measures at the upcoming Lujiazui Forum, as they try to stabilise prices, profits, and consumer confidence.

Elsewhere, Brazil’s President Lula downplayed the importance of U.S. trade, saying the country would seek new partners if needed. Global investors remain cautious as tariff threats, Middle East tensions, and policy fatigue continue to shape the economic outlook for the second half of the year.

Global equity market performances were uneven. U.S. indices were slightly lower, with the Dow down 1.02%, the S&P 500 off 0.31%, and the Nasdaq slipping just 0.08%. European stocks performed better - Euro Stoxx 50 rose 1.79% and the FTSE 100 gained 1.34%. In Asia, Japan’s Nikkei fell 0.61%, while the Hang Seng and Shanghai Composite both advanced over 1%. U.S. bond yields edged higher, with the 10-year Treasury yield rising to 4.41%. Gold gained 0.53%, and Brent crude surged 3.38% to $70.58 amid ongoing supply concerns. The dollar strengthened, and Bitcoin jumped over 9% for the week.

Market Moves of the Week:

The Trump administration imposed a 30% tariff on all South African exports to the U.S. from 1 August, with threats of further hikes if South Africa retaliates. This raises concerns for key export sectors. Domestically, political pressure mounted ahead of President Ramaphosa’s Sunday address to the nation, following allegations implicating senior police and political figures. The Democratic Alliance has laid criminal charges against the police minister, intensifying post-election coalition tensions.

Manufacturing production surprised to the upside, rising 0.5% year-on-year in May after a steep decline in April. In the energy sector, Shell received environmental approval to drill five ultra-deep-water wells off South Africa’s west coast, targeting the Orange Basin. While the potential is significant, regulatory and environmental hurdles remain. A successful outcome could help reduce reliance on fuel imports and support long-term energy security.

South African equities ended the week marginally positive, with the JSE All Share Index up 0.04%. Resource stocks led the gains, rising 1.57%, followed by industrials which added 0.75%. In contrast, financials fell sharply by 2.58%, while listed property dipped 0.19%. The rand weakened notably against the U.S. dollar, depreciating by 2.06% to close at R17.93, amid broader dollar strength and shifting global risk appetite.

Chart of the Week:

Consumer inflation expectations have eased back to pre-tariff levels, according to the New York Fed’s June survey. Median one-year ahead inflation expectations declined to 3%, marking a second consecutive monthly drop. Longer-term expectations held steady at 3.0% (three-year) and 2.6% (five-year). This aligns with recent government data showing softer inflation than anticipated, despite concerns that Trump’s trade policies could rekindle price pressures. Source: Bloomberg

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Source: STRATEGIQ Capital, an authorised financial services provider (FSP 46624)