Economic Overview - Efficient Private Clients
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Economic Overview

8 February 2025 Economic Overview - By efpc


February proved to be another volatile month for financial markets, as escalating geopolitical tensions, trade policy shifts, and obscure economic data releases fuelled market uncertainty. The month started with even higher levels of geopolitical tensions than usual, with United States (US) President Donald Trump announcing the implementation of tariffs against US trade partners. The first announcement entailed a 25% tariff on imports from Mexico and Canada, along with 10% levies on Chinese imports. Shortly after, a plan to raise “reciprocal tariffs” on imports from every country that has tariffs on US exports was announced. The policy direction weighed on corporate and consumer confidence, leading to renewed concerns about economic growth and the US exceptionalism narrative. As a result, risk assets sharply moved lower, with all three major US averages (S&P 500, Dow Jones, and Nasdaq Composite) ending the month in the red.

European equities maintained their lead in developed markets, with the STOXX Europe 600 Index surging 3.4% despite geopolitical noise stemming from Germany’s snap election. Friedrich Merz’s centre-right Christian Democratic Union secured the victory, which was supported by markets, owing to his pro-growth policies such as tax cuts and deregulation. Investor sentiment was also supported by the building expectation for a ceasefire in Ukraine.

Locally, Finance Minister Enoch Godongwana’s National Budget was postponed until 12 March, owing to disagreements between the governing coalition partners on his plan to raise Value-Added Tax (VAT) from 15% to 17%. The Democratic Alliance led the opposition stating that the party could not in “good conscience” agree to the VAT hike, which would raise the cost of goods and services, as well as hamper economic growth. The US also announced that it will be cutting all aid to South Africa after both Elon Musk and Donald Trump publicly stated their disapproval of the country’s land policy and recently signed Expropriation Bill. While the rand, along with local equities and bonds, came under pressure amid these headlines, they remained relatively resilient during February.

Other highlights during the month included:

  • Rate hike expectations shifted: Futures markets now anticipate three additional 0.25% rate hikes by the US Federal Reserve. This would push short-term interest rates from the current range of 4.50% to 4.75%, to 5.25% to 5.50%.
  • Emerging markets benefitted from Chinese tech strength: Emerging markets outperformed their developed counterparts, delivering a 0.5% return for February. A key driver was continued strength in Chinese technology stocks, alongside support from a weakening US dollar.
  • Commodities saw a mixed performance: Despite a slightly weaker US dollar and a rally in long-term bond prices, most commodities faced headwinds in February. Gold and copper saw gains, whereas silver, platinum, and palladium declined. Energy markets were mixed: Crude oil, oil products, ethanol, and Rotterdam coal prices fell, while natural gas surged nearly 25%.