JSE and Rand stand firm despite Trump tariffs and Budget challenges - Chris Harmse

Chris Harmse
JSE equities and the Rand held their ground despite Trump and Budget 2025. The controversial “second” attempt to set a national budget by the Minister of Finance, Enoch Godongwana, last Wednesday did not run smoothly as members inside the Government of National Unity and other opposition parties disagreed over many points.

The Minister had indicated that the loss in tax income (R28 billion) by only implementing a 0.5% hike in VAT this year will be made good by earning the same amount through bracket creep in personal income tax. The higher tax income burden was just shifted away from a higher VAT rate to consumers paying income tax. An almost double the inflation rate 7.8% increase in consolidated expenditure was allowed. This, against an expected gross domestic product (GDP) economic growth rate of 1.9% for the year 2025/26, also led to controversy. The tax increase proposals and doubtful higher economic growth assumption keep on paper the total debt to GDP at around 76% and debt servicing cost at 16.2% of total government expenditure and 22% of revenue.

The budget will be debated in parliament within the next two weeks where the Democratic Alliance (DA) has already indicated that it will vote against the budget due to the passing of the Land Expropriation Act 13 of 2024. The DA is due to use the budget issue to put pressure on the ANC to recall the act. The plan to implement infrastructure investment of more than R1 trillion over the next three years also raised eyebrows as the previous ANC government’s record of state capture on these projects due to noncompliance and mismanagement by state-owned enterprises and other government agencies via the tender process and execution.

In the US, President Donald Trump not only introduced the initial tariff hikes against exports from Mexico, Canada, and China but also plans to increase tariffs on steel imports by 25% and warned he will impose tariffs of 200% on wine, champagne, and other alcoholic products from Europe. This is in retaliation if the European Union goes ahead with a planned tariff on US whisky.

In reaction to these tariff threats, Wall Street in New York has taken a third consecutive weekly tumble. The benchmark Standard & Poor’s 500 fell 1.39% on Thursday, dragging the index into a correction as it approaches a 10% fall from the previous peak. For the week, the index lost 2.7% and traded 8.2% down from the beginning of the year.

Despite this negative sentiment around the South African national budget and the world trade war caused by the tariff policies imposed by the US, the JSE reacted indifferently with share prices ending the week flat in an opposite manner to share prices in the US and Europe.

As gold emerges as the haven against risky global equity prices and a weak US dollar, South African equities remain in demand. The All Share Index ended the week only 0.7% down on the previous Friday and is still 4.0% higher for the year to date. The Resource 10 Index gained 1.3% over the last seven trading days while both the financial and industrial boards ended the week flat. The Rand/Dollar exchange rate traded at R18.14 to the dollar in intra-trade on Friday, the lowest level since December 17, 2024.

Due to the stronger Rand/$ movement and Brent oil moving lower and testing the $70 (R1 273) per barrel level, South African motorists may get a big price bonanza at the beginning of April 2025. Currently, the price of petrol remains over-recovered by 95 cents per litre and the price of diesel recovered by 85c per litre. Such a decrease in fuel prices may have a bigger effect on middle-income homeowners than a cut in the repo rate of 25 basis points.

Domestically, investors and the public await the release of South Africa’s inflation rate for February this coming Wednesday and the decision by the Monetary Policy Committee (MPC) of the Reserve Bank on interest rates on Thursday. The market expects that the MPC will keep the repo rate unchanged at 7.5% and that the inflation rate has increased marginally to 3.3% in February from 3.2% in January 2025.

On global markets, investors wait for the announcement of the Federal Open Market Committee (FOMC) on Wednesday on the Federal Reserve’s bank rate. It is expected that the Fed will keep the rate unchanged at 4.5%. The US will release its retail sales data for February today. Both the Bank of England for the UK and the Bank of Japan for Japan will make their decisions on interest rates this week. Various other countries and the European Central Bank will publish their inflation rates for February.

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

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