SA markets under pressure as geopolitical tensions escalate and US Fed signals caution

South African markets traded on the backfoot on Thursday on the back of geopolitical risks arising from the war in the Middle East and the US Federal Reserve (Fed) revised down its growth forecasts for the US.

The rand fell 0.6% to R18.12 against the US dollar during early morning trade but still remained above the R18-mark by late afternoon while the JSE All Share Index eased by 0.2% to 94 785 points. 

The markets have remained on edge across the world as the war between Israel and Iran has intensified, pushing global oil prices to their highest in four months.

An Iranian missile barrage left at least 240 people wounded as they struck several sites across Israel, damaging a hospital in the country’s south while targeting a military site. Israel also attacked Iran’s Arak heavy water nuclear reactor as the two countries traded fire for a seventh consecutive day.

The war in the Middle East saw the Brent crude oil price rising 1.7% above $78 per barrel on Thursday as the main concern for the oil market remains the Strait of Hormuz, a vital route for a fifth of global crude.

Oil prices are now trading nearly 9% higher since Israel’s initial strikes on Iran, with energy markets increasingly pricing in the chance of deeper supply disruptions.

Adding to tensions, senior US officials are reportedly preparing for a possible strike on Iran in the coming days, signaling Washington’s readiness to enter the conflict.

However, mixed signals remain, as the White House has given little indication of whether the US would support strikes on Tehran’s nuclear facilities. 

Nigel Green, CEO of deVere Group - an independent financial advisory and asset management firm - said global financial markets were likely to suffer a rapid and sharp selloff if the US launches direct military strikes against Iran.

Green said a direct US military intervention could push crude significantly higher, especially if key infrastructure or shipping lanes are affected.

“The world economy is not in a strong position to absorb another energy shock,” Green said.

“If oil spikes from here, inflation expectations will shift, interest rate cut expectations will fade, and that would create a double blow for equities already priced for perfection.”

Separately, the US Fed on Wednesday kept interest rates unchanged at 4.25%–4.50% for a fourth consecutive meeting but signaled two possible cuts by year-end.

However, the Fed trimmed one cut for both 2026 and 2027, with the bank raising its inflation outlook and lowering its growth forecast.

It comes as policymakers take a cautious stance to fully evaluate the economic impact of US President Donald Trump’s policies, particularly those related to tariffs, immigration, and taxation.

The Fed noted that the increases in tariffs this year are likely to push up prices and weigh on economic activity, adding that the effects on inflation could be short-lived—reflecting a one-time shift in the price level— and could instead be more persistent.

It said the effects of tariffs will depend, among other things, on their ultimate level. Expectations of that level, and thus of the related economic effects, reached a peak in April and have since declined.

Investec chief economist, Annabel Bishop, said the markets have been particularly worried about the increased chance of a weakening in the US economic environment following trade and other policy changes in the US, while uncertainty is high, adding to risk aversion for investors.

“Concerns persist that the Fed is leaving it too late to cut interest rates in the face of sudden economic weakness, while the Federal Open Markets Committee says if either growth or inflation is too far from their goal, they will react depending on how far either is from their goal,” Bishop said.

“SA is still expected to see further interest rate cuts this year, with CPI inflation once again came out below the 3-6% year-on-year inflation target, unchanged at 2.8% year-on-year in May on high base effects and suppressed demand in a low growth environment.”

BUSINESS REPORT