Most global and South African financial markets started 2025 on the back foot as investors avoided risky assets and turned to the dollar and gold as safe havens. The possible introduction of tariffs on imports by the Trump administration in the coming months and the surge in oil and other energy prices have boosted expectations of renewed global inflation.

Together with a better-than-expected US jobs report the previous Friday, market analysts began to anticipate that the current cycle of lowering the Federal Reserve’s interest rate may have reached its lowest point.

Bearish traders on global stock markets pushed share prices downwards during the first thirteen trading days, making this one of the worst starts to a year since 2020. On Wall Street, the S&P 500 lost 3.4% from January 2, 2025 to Tuesday, January 14, 2025.

However, last Wednesday’s announcement of lower-than-expected US core inflation at 3.2%—its lowest level since September 2024—alongside reports of soaring profits from some of the US’s largest banks, encouraged risk-on sentiment among investors. Optimism about a further rate cut by the Federal Reserve has since emerged.

On Wall Street, the Dow Jones Industrial Average rebounded sharply from last Wednesday, ending the week 3.9% stronger and recording a 2.7% increase since January 2, 2025. The S&P 500 rose by 1.83% last Wednesday, ending the week 3.5% higher and wiping out the year’s earlier losses to stand 2.3% up year-to-date. The tech-heavy Nasdaq Composite also ended the week higher by 2.5%, recording a 1.7% year-to-date increase.

“We believe the market will be encouraged by the decrease in core inflation, which should alleviate some of the pressure on stock and bond markets, both of which had a poor start to the year due to inflation fears and concerns that the Federal Reserve would not only stop cutting interest rates but might reverse course and begin raising them,” said Chris Zaccarelli, the chief investment officer at Northlight Asset Management.

On the JSE, share prices followed Wall Street. Higher gold and platinum prices also supported last week’s strong recovery in local share prices. The All Share Index rose by 1.3%, wiping out earlier losses to trade 0.2% higher than its level on January 2. The Industrial 25 Index gained 2.25% last week, while the Resources 10 Index climbed 1.25%, bringing its year-to-date gain to 8.6%. This sharp increase was driven by the recovery in the gold price, which reached its highest level this year at $2 716 (R50 904) per ounce, and platinum, which rose to $944 per ounce on Friday, up 3.3% since the start of the year.

Increased optimism about US inflation and the prospect of further Federal Reserve rate cuts also helped the South African Rand recover last week. The currency ended the previous Friday at R19.10/US$, its strongest level since the R19.32/$ recorded on February 23, 2024. The Rand strengthened by 40 cents last week to close on Friday at R18.70/$.

Despite this sharp appreciation of the Rand, the significant rise in the Brent crude oil price by more than $8 per barrel to $82 since the Central Energy Fund determined fuel prices on December 28, 2024, suggests a steep increase in fuel costs for February. As of last Thursday, January 16, 2025, petrol prices for 95-octane were expected to rise by 86 cents per litre, with diesel increasing by 106 cents per litre. These anticipated fuel price hikes and the weaker Rand may prevent the South African Reserve Bank’s Monetary Policy Committee from lowering its repo rate in the near term.

This week South African investors await the announcement of the headline and core inflation rates for December. Headline inflation is expected to rise to 3.0%, up from 2.9% in November, while core inflation is projected to increase from 3.7% to 4.3%. The headline rate remains well below the MPC’s midpoint target of 4.5%. Statistics South Africa will release November retail sales data on Wednesday and mining production data for the same month on Tuesday.

Globally, investors and analysts will be watching for several key data releases. On Thursday, the US will publish crude oil stock changes, existing home sales data, and various Purchasing Managers’ Indices. The UK will release November unemployment figures, while Canada will announce its inflation rate for December.

Chris Harmse is the consulting economist of Sequoia Capital Management and a senior lecturer at Stadio Higher Education.

BUSINESS REPORT