Advice & Comments
7 Apr 2025
Stock markets fell sharply this past week following the Trump administration’s announcement of sweeping new tariffs.
In this Edition:
Trump Administration Implements Aggressive Tariff Policy
U.S. Tariff Rates Reach Century-High Levels
Mixed U.S. Economic Indicators
European Economic Recovery Shows Modest Improvement
ECB Maintains Cautious Stance
Asia Faces Trade Tensions and Mixed Economic Performance
Global Markets Experience Significant Volatility
South African Budget Vote Creates Political Tensions
South Africa's Economic and Trade Developments
Local Markets Under Pressure
Market Moves of the Week
Chart of the Week
Trump Administration Implements Aggressive Tariff Policy
Stock markets fell sharply this past week following the Trump administration’s announcement of sweeping new tariffs. From 5 April, the U.S. will impose a minimum 10% tariff on all imported goods, with significantly higher rates for countries running large trade surpluses with the U.S. - China, for example, will face a 34% tariff, while the EU and Japan will be subject to rates of 20% or more. This marked shift in U.S. trade policy, aimed at rebalancing global trade, has raised fears of slower growth, rising inflation, and recession risks. Retaliatory measures, particularly from China, have added to market unease.
U.S. Tariff Rates Reach Century-High Levels
The average U.S. tariff rate is now expected to rise from around 2.3% in 2024, to between 20% - 25% - the highest in over a century. Markets responded with broad declines: the S&P 500 and Dow Jones recorded their worst one-day drops since 2020, with equities closing last week near their lowest levels since October 2024. Investors shifted into safe-haven assets like U.S. Treasuries, and expectations for Federal Reserve rate cuts in 2025 increased. While Fed Chair Jerome Powell acknowledged growing risks, he maintained that the economy remains on solid footing and that the central bank will wait for more clarity before adjusting policy.
Mixed U.S. Economic Indicators
Economic data painted a mixed picture. U.S. manufacturing slipped back into contraction, with the ISM Manufacturing PMI falling below 50 and new orders weakening. Input costs rose sharply, largely due to the impact of tariffs. The services sector continued to grow, but at a slower pace, with the ISM Services PMI easing to 50.8 - below expectations. Cost pressures remained elevated, with many businesses citing increased expenses linked to trade uncertainty. The labour market offered some reassurance. The U.S. added 228,000 jobs in March, well above forecasts and a strong improvement on February’s figures, although the unemployment rate ticked up slightly to 4.2%.
European Economic Recovery Shows Modest Improvement
In Europe, the economic picture showed modest signs of improvement. The eurozone services PMI rose to 51, and inflation continued to ease, though producer prices increased more than expected. France’s firm stance on U.S. tariffs suggests trade tensions could hinder the recovery. UK data was more subdued: the manufacturing PMI fell to 44.9, house prices were flat in March, and mortgage approvals reached their lowest since August 2023.
ECB Maintains Cautious Stance
The European Central Bank remains cautious. While headline inflation fell to 2.2%, policymakers highlighted the risks posed by U.S. trade policy. President Christine Lagarde noted that further progress is needed to sustainably meet the 2% inflation target. Markets now see a 90% chance of a rate cut in April, with a full cut expected by June.
Asia Faces Trade Tensions and Mixed Economic Performance
In Asia, China’s factory activity accelerated, with the Caixin Manufacturing PMI rising to 51.2 and services improving. However, U.S.-China trade tensions escalated as Beijing responded swiftly to U.S. tariffs with a matching 34% levy and broader trade restrictions. Analysts estimate the tariffs could shave 1–2% off China’s GDP, though further fiscal support is expected. Japan’s data was softer, and with increased global uncertainty, the Bank of Japan may delay its next interest rate hike.
Global Markets Experience Significant Volatility
It was a volatile week for global markets. The Dow fell 7.86%, the S&P 500 lost 9.08%, and the Nasdaq dropped 10.02%. In Europe, the Euro Stoxx 50 fell 8.50% and the FTSE 100 declined 6.97%. Japan’s Nikkei 225 dropped 9.00%, while Chinese markets, closed on Friday, saw more modest moves by Thursday’s close. Heightened fears of a global slowdown and growing expectations of rate cuts pushed bond yields lower. While unsettling, such corrections are not unusual - historically, the S&P 500 sees a 10% pullback roughly once a year, and larger declines every few years as part of the normal market cycle.
South African Budget Vote Creates Political Tensions
Last week’s local headlines were dominated by the national budget vote and escalating tensions within the Government of National Unity (GNU). The DA opposed the proposed fiscal framework, rejecting a VAT hike and calling for widespread spending cuts. The ANC pushed back against what it labelled an “austerity budget” and rallied support from several smaller parties - both within and outside government - to pass the framework in parliament by 194 votes to 182. In response, the DA has filed a legal challenge, citing procedural flaws, and is reconsidering its role in the GNU, with negotiations between the parties ongoing.
South Africa's Economic and Trade Developments
In trade developments, South Africa was included in new U.S. tariff measures, facing a 30% levy that could negatively affect exports. Despite the political and trade headwinds, there were signs of resilience in the economy. February’s trade balance posted a R20.9 billion surplus, and March vehicle sales were strong, with overall volumes up 12.5% and passenger cars rising 25%.
Local Markets Under Pressure
The local market came under significant pressure last week, with the JSE All Share Index falling by 8.95% as all three major sectors recorded losses. By Friday’s close, the rand had weakened to R19.09 against the U.S. dollar.
Market Moves of the Week:
Chart of the Week:
President Trump announced U.S. reciprocal tariff plans that were more aggressive than expected. The new tariffs are estimated to raise the effective tariff rate on U.S. imports from 2.3% in 2024 to between 20% - 25%, the highest in at least 100 years. From 2000 - 2024, the average U.S. tariff rate for all imports was a modest 1.7%. Based on the announced tariffs, the average U.S. tariff rate is expected to jump to between 20% – 25%. In 2024, the U.S. economy imported roughly $3.3 trillion of goods. Assuming an average tariff rate of 20%, this would equate to tariff revenue of roughly $660 billion, or roughly 2.3% of 2024 GDP. Source: Bloomberg, U.S. International Trade Commission, Edward Jones.