Weekly Review – U.S. and UK agree to trade deal

This week marked a notable development in international trade relations as U.S. President Donald Trump and U.K. Prime Minister Keir Starmer jointly announced a limited bilateral trade agreement. The deal retains the existing 10% baseline tariff on British exports, while carving out modest improvements in agricultural market access for both nations and reducing U.S. tariffs on British automobile exports. Though incremental, the agreement is seen as a signal that core tariff structures—particularly the 10% baseline and 25% sectoral duties—will remain entrenched as negotiations with other countries unfold.

The announcement, the first new trade deal since the Trump administration implemented reciprocal tariffs on April 2, briefly lifted investor sentiment. However, broader market caution prevailed as attention shifted to high-stakes U.S.-China trade talks scheduled for the weekend in Geneva. President Trump suggested a potential reduction in tariffs on Chinese imports from 145% to 80%, while asserting that "many trade deals" are currently underway.

As expected, the Federal Reserve left its benchmark interest rate unchanged, maintaining the federal funds target range at 4.25% to 4.50%. In its post-meeting statement, the Federal Open Market Committee (FOMC) acknowledged growing risks of both rising unemployment and persistent inflation. Chair Jerome Powell emphasized the importance of policy patience in the face of elevated uncertainty, indicating that the Fed is positioned to wait for clearer economic signals before taking further action.

Looking ahead, Fed officials—including Chair Powell—are scheduled to speak throughout the coming week. April inflation data, expected to show a 0.3% month-on-month increase in both headline and core consumer prices, will also be closely watched as markets assess the impact of recent trade policies.

For the week, despite a momentary lift from the U.S.-U.K. trade news, equities ended the week lower. The S&P 500 declined 0.5%, the Nasdaq lost 0.3%, and the Dow slipped by 0.2%.

High-level trade negotiations between the U.S. and China are set to resume in Switzerland this weekend. U.S. Treasury Secretary Bessent and Trade Representative Greer will meet with Chinese Vice Premier He Lifeng in a bid to de-escalate tensions. Meanwhile, new customs data showed Chinese exports to the U.S. plummeted 21% year-over-year in April, falling to $33 billion amid steep U.S. tariffs—a stark reminder of the ongoing economic toll.

In the UK, the Bank of England narrowly voted to cut its key interest rate by 25 basis points to 4.25%, citing the need for a “gradual and careful” policy path. The FTSE 100 Index eased 0.48% on the week, while in Europe the STOXX 50 Index rose 0.46%, lifted by hopes of a thaw in U.S.-China trade tensions.

In Japan, markets were buoyant in the holiday-shortened week, with the Nikkei 225 Index rising 1.83% as a weaker yen and global trade optimism boosted sentiment.

Chinese equities also ended the week firmer as the benchmark Shanghai Composite Index advanced 1.92%, supported by trade talk optimism and policy support from the People's Bank of China, which cut its seven-day reverse repo rate to 1.4% and trimmed the reserve requirement ratio by 50 basis points.

In a concerning geopolitical development, the conflict between India and Pakistan deepened as Islamabad launched a military operation in response to overnight Indian strikes on Pakistani military installations. The situation represents the most significant escalation in decades between the two nuclear-armed nations. Global leaders have called for urgent restraint to avoid further deterioration.

Market Moves of the Week:

South African President Cyril Ramaphosa this week announced the second phase of Operation Vulindlela (OV), a strategic reform initiative jointly led by the Presidency and the National Treasury. The new phase outlines 30 key structural reforms, with a sharpened focus on unlocking growth in the digital economy and strengthening local government performance. OV aims to remove persistent bottlenecks in South Africa’s economy and accelerate implementation of high-impact policy changes.

According to the Bureau for Economic Research, if the planned reforms are fully implemented, South Africa could achieve GDP growth of 3.5% by 2029. This is a marked contrast to more modest near-term forecasts: the National Treasury projects 1.9% growth in 2025, while Moody’s Ratings Agency lowered its 2025 growth forecast to 1.5% earlier this week.

In a significant political and legal development, the Democratic Alliance (DA) has launched a constitutional challenge to Section 15A of the Employment Equity Amendment Act. The section grants the Labour Minister the authority to set sector-specific employment targets aimed at improving representation of Black South Africans, women, and people with disabilities. The DA argues the provision is discriminatory and may inadvertently lead to job losses and constrain economic growth.

The South African rand ended the week trading at 18.19 to the U.S. dollar, approximately 2% stronger week-on-week. Market sentiment has been buoyed by signs of stability in South Africa's coalition government, particularly after Finance Minister Enoch Godongwana abandoned plans to increase the value-added tax (VAT). His revised national budget, expected on May 21st, is now in sharper focus as markets assess fiscal policy continuity.

The JSE All Share Index posted a modest decline for the week, with the financial sector underperforming and shedding 1.7%. Market participants remain cautious ahead of global trade talks and await further details on domestic economic reform and budgetary policy.

Chart of the Week:

Source: China Customs, Goldman Sachs Global Investment Research.

China’s exports surged 8.1% in April on the back of a jump in shipments to Southeast Asian countries, offsetting a sharp drop in outbound goods to the U.S. as prohibitive tariffs kicked in. Exports to the U.S. stood at $33 billion last month, a drop of approximately 21.0% year on year (vs. +9.1% yoy in March) as the world’s two largest economies prepare for de-escalation talks.

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