Monthly Market | March 2025

Trump’s unpredictable trade policies complicate inflation outlook for central banks.  The US market has been caught in a sell-off over the past few weeks, with the indices masking severe damage under the surface, particularly among growth and momentum names. For example, the Magnificent 7 Index has fallen by around 17% since mid-February. The ostensible cause of the decline is the political and economic uncertainty caused by US President Donald Trump’s aggressive and haphazard actions concerning tariffs and, to a lesser extent, the Department of Government Efficiency (DOGE), run by Elon Musk.

Repo Rates are stabilising amidts Global tensions and fears of tariffs from the US

Source: Momentum Invest

The US Federal Reserve paused interest rate cuts.  Economic activity has continued to expand at a solid pace but uncertainty around the economic outlook has increased.  The Fed also cut their growth forecast for 2025 from 2.1% to 1.7%, while hiking the inflation forecast. Their expectations are still for two rate cuts in 2025.   The Bank of England held interest rates at 4.5%, stating that it would stick to a “gradual and careful” approach to easing.

The US budget deficit for the first five months of fiscal 2025 hit a record $1.147 trillion, with government borrowings this fiscal year working out to about $8 billion a day. “What needs no confirmation is that we are almost halfway through the fiscal year and yet we have done nothing in the way of making progress toward getting our skyrocketing debt under control,” said the president of The Committee for a Responsible Federal Budget, Maya MacGuineas.  Debt seems to be a massive international issue, also in South Africa.

The televised meeting between President Donald Trump and Volodymyr Zelenskyy has highlighted the significant shift in US foreign policy.  President Trump offered Ukraine a deal that involved concessions to Russia, and pressured Zelensky to agree to a settlement without providing any security guarantees for Ukraine.

The executive orders keep on coming.  President trump has signed an executive order designating English as the official language of the US and has also announced that his administration is establishing a US Crypto Reserve, in a move to bolster the cryptocurrency industry and integrate digital assets into national financial planning. This reserve will include Bitcoin, Ethereum, Solana, XRP and Cardano.  Within minutes, cryptocurrencies — bitcoin, ethereum, SOL, XRP and ADA surged sharply, adding more than $120 billion to their combined market capitalisation. The creation of a US crypto strategic reserve raises urgent questions about whether public policy is being converted into a private profit engine and whether the world’s leading reserve currency can be so casually tied to thinly traded, speculative instruments without consequence. It marked a dramatic reversal from Trump’s 2021 stance, when he dismissed bitcoin as a scam and a threat to the dollar. The sudden pivot, combined with the choice of assets, raises immediate questions. Trump and his family have direct financial ties to World Liberty Financial, a lightly regulated crypto startup that launched its own token just weeks before his inauguration.

US economic data raised concerns about the US economy while boosting hopes for multiple 2025 Fed rate cuts.  This at a point where the current forward P/E of the S&P500, at roughly 22, signals a strong possibility that the index might be severely under pressure for the next 5 to 10 years.  Historically, forward P/E figures at this level was followed by returns of between -2% to 2% per annum for the ensuing 10 years.  This is illustrated in the graph below.  As a result, asset managers are underweight US equities.

S&P 500 Forward PE & Subsequent 10-Year Returns (p.a)

Source: Bloomberg / Laurium Capital

Mark Carney was sworn in as Canada’s next prime minister. Carney is a former central banker who led the Bank of Canada and Bank of England. Carney’s new cabinet may be about half the size of Trudeau’s executive, reported Bloomberg.  

Eurozone activity is rebounding.  The composite PMI rose to 50.4, a 7-month high, driven by Germany’s planned infrastructure and defence spending to revive its stagnant economy.  Germany's giant spending to beef up its military and modernise its infrastructure passed a final hurdle when the upper house signed off on the cash splurge.  It paves the way for over one trillion euros worth of outlays in Europe's top economy, which has shrunk for the past two years.

UK inflation eased and inflation fell to 2.8% in February, but the BoE held rates at 4.5% in March, citing intensifying global uncertainties (like the SARB). Rates are now at their lowest since mid-2023.

South Africa

Tension between South Africa and the US escalated once more, with US Secretary of State Marco Rubio declaring that South African Ambassador Ebrahim Rasool was no longer welcome in the US and had to leave the country. Rubio’s strong reaction was prompted by comments made by in which he described the Trump administration as leading a global white supremacist movement. The presidency says it is confident it can reset South Africa’s relationship with the US after the expulsion.

President Donald Trump has nominated American conservative writer, activist, and media critic Leo Brent Bozell (69) to be the next US ambassador to South Africa.

On 2 April the Trump administration slammed various countries with tariffs, with South Africa getting an increase of 30%.  This will impact on the local economy, and it seems as if AGOA is something of the past.  Businesses will have to consider absorbing the tariff, passing it on to the US consumer or to explore other markets.  For now, it will have a short-term impact, but businesspeople has a knack of working through such problems.  The average tariff SA puts on US goods is 7%, so one can expect a trade war, not only with SA, but with 59 other countries, including some of the US’s historical alliances like Europe.

As the 2 April 2025 deadline to passed, the budget in Parliament was accepted with some RNE partners voting against the budget while some non RNE members voting for the budget.  The uncertainty will prevail though, as the DA will lodge a dispute in the courts.  However, this process will take some time to be resolved, but in the meanwhile at least government functions can proceed, and we are not sitting with a constitutional crisis, which a non-acceptance would have caused. 

It also puts strain on the RNE partners.  The RNE should still proceed as they aim to resolve issues going forward, but it does create a lot of uncertainty.

SA annual consumer price inflation remained unchanged at 3.2% in February. The average inflation forecast for 2025 fell further in the first quarter of this year, dropping below the level the SARB aims for. According to a survey by analysts, businesspeople and trade union officials, inflation of 4.3% is expected in 2025, down from 4.5% in the previous survey.   The SARB held the repo rate steady at 7.5%, despite benign domestic factors.  One of the key reasons for the central bank’s decision to hold off on a rate cut, after three consecutive cuts of 25 basis points each, is the uncertain global economic environment.

Retail sales soared in 2025, defying post-holiday dip forecasts (two pot withdrawals?), with some of the leading indicators like new vehicle sales increasing substantially in quarter four of 2024.  South Africa's economy exhibited modest growth in this quarter, with gross domestic product (GDP) expanding by 0.6%.

Business confidence has improved significantly, with the Business Confidence Index rising from 27 points in June 2023 to 45 in March 2025. Key drivers include the formation of a Government of National Unity (GNU), stable electricity supply, lower interest rates, Standard & Poor's (S&P’s) shift to a positive credit rating outlook, and progress on structural reforms.

In contrast to global equities, South African stock is well priced at an almost 20% discount, so asset managers currently tend to be overweight in SA equities.  Although there are risks associated with it, markets tend to drift to long-term averages. 

Source: Laurium Capital

This theme has played out over the first quarter with the local index outperforming the S&P500 in rand terms.  What makes it more meaningful is the fact that the rand has also strengthened over the same period.  This is illustrated in the graph below.

From 31/12/2024 to 25/03/2025

Source: Fund Focus

Snippets from the market

• April 2 – “Liberation Day”: President Trump plans to impose a 25% tariff on auto imports to boost US manufacturing and generate up to $100bn in annual revenue. The move could disrupt North American automakers and raise car prices significantly.

• SA’s leading private hospital association (HASA) has asked the high court in Pretoria to declare the ANC’s controversial National Health Insurance Act unconstitutional, and unlawful and set it aside.

• Washington seeks control over Ukrainian infrastructure and mineral investments, with veto power over allies, priority access to resources, and 50% of new project earnings channelled to a US-managed fund – potentially undermining Ukraine’s EU ambitions.

• A massive R55bn floating wind farm is planned off the KZN coast.

• South Africa now ranks tenth as a gold producing nation. China ranks first with 10% of global gold production followed by Russia and Australia.

• According to the World Happiness Report, the US has dropped to 24th, its lowest ever. Finland was again in first place followed by Denmark. South Africa ranks 83rd.  Finland is a Scandinavian country with some of the best education and healthcare in the world, but paradoxically it still has a relatively high suicide rate, ranking tenth in 2020.

• The European Central Bank (ECB) lowered the three key interest rates by 25 basis points (bps).  This brings the total cuts during this cycle to six, with 150bps so far.

• R17.25 billion year-on-year diesel saving achieved with continued suspension of loadshedding.

• R520 billion, the amount confirmed by Finance Minister Enoch Godongwana, that the government has spent to bail out state-owned enterprises.

• Ukraine expressed its willingness for a 30-day ceasefire while talks continued in Saudi Arabia, putting the ball firmly in Moscow’s court. In answer, the US agreed to resume military aid and intelligence sharing

• Cybercriminals hacked the National Health Laboratory Service in a ransomware attack that put the lives of thousands of South Africans at risk as laboratory results detailing an array of medical info, such as cancer diagnoses, were held to ransom.

• Asia’s weighted real GDP growth rate is projected to reach 4.5% this year, according to the Boao Forum annual report.

• Ukrainian President Volodymyr Zelensky agreed to a partial ceasefire with Russia focused on “energy and other civilian infrastructure.”.

• Brazil’s former president Jair Bolsonaro will stand trial for allegedly conspiring to overthrow the government after he lost a 2022 election.

• China announced a “Special Action Plan to Boost Consumption” to prop up domestic consumption in the world’s second largest economy.

• The Department of Transport has launched a formal process to involve private companies in South Africa’s struggling rail and port infrastructure. Minister Barbara Creecy is serious about involving the private sector in this sector.

• Minister of Police Senzo Mchunu has told members of parliament that porous borders are contributing to the proliferation of illegal mining.

• The Auditor General’s report on Johannesburg City Power for the 2023/2024 financial year shows it has lost about R5billion of electricity it purchased from Eskom, and casts significant doubt on whether the power utility can stay afloat.

• A question mark hangs over the involvement of Russia’s Gazprombank Africa in the feasibility study for the restart of PetroSA’s Mossel Bay gas-to-liquids refinery, says Minister Gwede Mantashe.

• With the National Water Amendment Bill introduced in November 2023, municipal managers and mayors could face fines or jail if their municipalities fail to maintain wastewater treatment works and polluting water systems.

• Bill Gates is personally lobbying Trump administration officials to keep funding health programmes worldwide, from childhood vaccination to HIV treatment, warning that his foundation cannot step in to fill gaps.

• Rwandan-backed M23 rebels have withdrawn from peace negotiations with the Democratic Republic of Congo’s government.

• Turkey has arrested nearly 1,900 people demonstrating against the detention of Istanbul mayor Ekrem Imamoglu, who is seen as a strong opponent of President Erdowan.

• The JSE went through 90 000, while the Rand hit its best level in months as the dollar suffered from the Trump slump.

• Ford Motor Company has begun full-scale production of the world’s first Ranger Plug-In Hybrid Electric Vehicle at its Silverton manufacturing plant in Pretoria.

• Brazil’s foreign trade secretary warned that global trade is at risk of being being “weaponised” after Trump imposed 25% auto tariffs.

• South African vehicle and components manufacturers say they do not know yet whether their duty-free export access to the US is affected by President Donald Trump’s announcement of a 25% import tariff on automotive goods.

• The government aims to have a new state-owned entity consolidating non-municipal water infrastructure assets such as dams and land to be fully established by 2026.

• Six months after Agriculture Minister John Steenhuisen requested his controversial chief of staff, Roman Cabanac, to consider resigning, he remains in the job with an annual salary of R1,436,022.

• PwC says the fiscus is likely to suffer a potential revenue shortfall of R18 billion in 2025/26 because the National Treasury has overestimated GDP growth in the budget.

• South Africa is rolling out its most extensive review of steel tariffs in more than 20 years to protect the embattled local industry.

• Cash-strapped Transnet and the SA Transport and Allied Workers Union have signed a wage deal that matches the union’s demands for above-inflation increases of 17.5% over three years.

• South Africa’s consumer confidence plummeted to a two-year low in the first quarter of 2025, one of the steepest declines in recent history.

• Eskom has added Kusile power station’s final unit, unit 6, to the national grid, bringing it closer to its goal of adding 2 500MW of new capacity by this month.

• The South African government has withdrawn its contentious regulations banning the sale, importation and manufacture of food products containing hemp and cannabis.  Phew!!

• Zimbabwe President Emmerson Mnangagwa acted to consolidate his hold on power with the dismissal of the head of the army, General Anselem Sanyatwe.

• Namibia’s new president, Netumbo Nandi-Ndaitwah, was sworn in as Namibia’s first woman president.

• As a result of less children, South Korea’s largest online website has sold more pet strollers than baby strollers for the first time this year.

SA Private Sector electricity production (mostly solar energy)

Source: Stanlib

Source: Daily Maverick