With wars raging in Ukraine and the Middle East, new powers such as China and India asserting themselves, and the economic rise of the global south, the geopolitical environment is in flux. Political developments in the US, as the world’s hegemon, will have an outsized effect on global politics and, consequently, the world economy.
Decisions made in Washington reverberate throughout the world. As the world’s largest economy, US policies impact global financial markets, particularly through trade agreements, tariffs, and sanctions. This, in turn, can profoundly impact investment returns across every asset class.
Changes in the American political landscape, such as elections, can shift global dynamics drastically, leading to fluctuations in the pricing of geopolitical risk. For instance, the upcoming US presidential election in November will see a clash between isolationist and internationalist approaches, embodied by candidates Donald Trump and Kamala Harris.
Trump, who pursued tough tariffs against China in his first term, has promised to be even more aggressive if he becomes president for a second time. He has previously said that, if elected president, he would impose a 10% universal tariff on all imports, while duties on Chinese products would reach up to 60% and duties on Mexican cars could be 100%. This has introduced an element of price unpredictability for American businesses that import goods from those regions.
The impact on the American economy could be profound. One study in January 2021, commissioned by the US-China Business Council, claimed that Trump’s trade policies in his first term cost the United States 245,000 jobs. His new promises go much further, with echoes of the infamous Smoot-Hawley Tariff Act of 1930.
That Act’s main purpose was to protect American farmers from foreign competition, but lobbyists from other industries also sought protection. The Act increased tariffs on a wide range of agricultural and industrial goods by about 20%. The act coincided with a period of prolonged economic contraction and falling equity prices during the early 1930s.
While stocks crashed on Black Thursday in 1929 and went into freefall for years, economists believe that the tariff war exacerbated and prolonged the Great Depression by stifling trade and making imports overly expensive. The act also heightened international tensions.
Barclays has modelled what the impact of Trump’s proposed tariffs might be. Even bearing in mind that firms could navigate tariffs by shifting supply chains or passing prices on to consumers, it expects corporate profit margins to take a hit. It believes Trump’s proposed tariffs would lower S&P 500 earnings by as much as 4.7% next year.
It’s also important to keep in mind that Trump’s tariffs would likely be highly inflationary, which would have ramifications for interest rates. In addition, since the US is the world’s largest importer, an America-first policy would be highly disruptive to economies and equities markets worldwide, triggering trade wars reminiscent of the 1930s.
Furthermore, Trump has threatened to impose 100% tariffs on countries that shun the US dollar – a move that would create even more animosity in an environment where many countries believe the US has weaponised its currency to impose its will on other sovereign nations and advance its interests.
Far from reinforcing US hegemony and the dollar’s dominance, such a move could incentivise certain countries to double down on efforts to move away from using the dollar as a trade and reserve currency. This could cause massive disruption to the world economy over the medium and longer term.
Should Trump win, safe havens such as gold and the US dollar might see inflows as markets seek safety in the face of his unpredictable stance on trade and foreign affairs. Supply chain disruptions and higher oil prices may keep inflation elevated. But in the long-term, US dollar dominance could be eroded.
In contrast with Trump, a Harris presidency would likely show continuity with President Joe Biden’s approach. (Yet, it’s worth noting that, despite his softer language and more cooperative approach, Biden not only kept many of Trump’s tariffs in place but imposed some of his own. These included hikes in duties on imports of Chinese goods including semiconductors and electric vehicles.)
This week, following the debate between Trump and Harris, Trump trades such as Bitcoin went in reverse and Harris trades like clean energy gained. But we believe that one factor that deserves much closer attention is how foreign and trade policy could affect markets next year and beyond. Our view is that radical isolationist policies are not priced into the markets at this stage.
Over the decades, we have seen the US led by administrations with contrasting visions of America’s role in the world that have had profound implications for global markets. Markets are already factoring in potential risks, but not all outcomes, which leaves room for significant volatility depending on who takes office and how they approach global relations.
“In a world dependent on international trade and commerce, and staggering under a heavy load of international debt, no policy is more destructive than protectionism. It cuts off markets, eliminates trade, causes unemployment in the export industries all over the world, and depresses the prices of export commodities.”
– German American economist, Hans F. Sennholz
“There are no winners in a trade war.”
– Xi Jinping, President of China
Global News
- Trump’s plan to force dollar dominance in global trade has a high risk of causing economic disruption that could ultimately weaken the US currency, according to a long-range scenario by Commerzbank strategist Leuchtmann, who analysed a theoretical chain of events that could play out in US financial markets if Trump’s threat to impose 100% tariffs on countries that shun the dollar, a pledge made at a rally in Wisconsin on Saturday, becomes reality.
- The World Trade Organization has come out against trade protectionism as risks to the trade forecast remain substantial, saying that protectionism neither protects the overall economy nor promotes overall inclusiveness within an economy. In its World Trade Report 2024, it said trade might be starting to fragment along geopolitical lines amid geopolitical tension and the backdrop of the climate crisis.
- The so-called Trump trades, including Bitcoin and Coinbase, went into reverse on Wednesday following the debate, while bonds and Asian currencies rallied. And some funds that own solar and other clean energy stocks rose sharply.
- Bloomberg has listed some of the richest Americans who have publicly supported one of the presidential candidates. Among those billionaires who are backing Former President Donald Trump are Elon Musk, Stephen Schwarzman, Miriam Adelson, Jeff Hilderbrand, Harold Hamm, Tillman Fertitta, Andy Beal, Diane Hendricks, Woody Johnson IV, Bill Ackman, Joe Ricketts, Edward Roski, Bernie Marcus, Kelcy Warren, Gary Rollins. On the converse side, those backing Vice President Kamala Harris include Michael Bloomberg, Eric Schmidt, Dustin Moskovitz, George Soros, Christy Walton, Steven Spielberg, Melinda French Gates, Elizabeth Johnson, Laurene Powell Jobs, David Shaw, Jon Gray, Pat Stryker, Henry Laufer, Mark Cuban, Joe Gebbia, John Doerr, Margot Perot, Tony James, Gordon Getty, John Sall, Reed Hastings, James Cox Chambers, and Katharine Rayner.
- Trump and Harris sparred for more than 90 minutes on Tuesday in a head-to-head matchup which resulted in opinion polls attracting some investor attention. However, political noise continues to be more entertainment than of meaningful content. Former US President Trump has declined an additional debate with US Vice President Harris.
- The US inflation rate retreated from a 2.9% annual increase in July to 2.5% in August, marking the lowest annual increase since February 2021 and landing at a rate that matched the average seen in 2018. On a monthly basis, prices were unchanged from July’s increase of 0.2%. The print came in better than expected, with economists projecting a 2.5% annual gain and a 0.2% lift for the month.
- Even as the Fed is expected to start cutting interest rates next week, the immediate impact may be muted. While there is typically a lag in monetary policy decisions and the effect on the economy, the first cut since the Fed started its hike cycle in March 2022 is likely to take longer than usual to impact the economy. The strange outcome this time is that, just as policymakers are about to cut, interest-rate conditions for parts of the economy will tighten. Several factors contribute to this: Many American companies entered the tightening cycle cash-rich, which boosted returns as interest rates increased, but these gains are now slowing down; lenders, despite rising policy rates, were slow to pass on rising costs to borrowers; and crucially, many companies locked in low rates through long-term borrowing in 2020 and 2021, shielding them from subsequent rate hikes. Now, however, those favourable terms are beginning to expire.
- On Thursday the ECB cut the deposit rate by 25bps as new projections showed a weaker growth outlook and more stubborn core inflation. Predictions for overall price growth were unchanged, and the ECB still expects a return to 2% before the end of 2025.
- The UK economy stagnated for a second month in July, unchanged after flatlining in June, suggesting that a rapid recovery from recession is now losing momentum in a blow for Prime Minister Keir Starmer. Economists were forecasting a 0.2% increase. The Bank of England and private-sector economists are forecasting growth of 0.3% on average in the third and fourth quarters. The economy has failed to grow in three of the past four months.
- England’s National Health Service is in “critical” condition, according to a government-commissioned report that cited long treatment waits, deteriorating hospital conditions, inadequate mental health facilities, and far fewer MRI scanners than in comparable countries. The review was commissioned by Starmer after his Labour Party won the July election, during which the polls indicated that the poor condition of the NHS influenced voters. Starmer announced plans for a 10-year overhaul, calling it the most significant reform since the NHS was founded in 1948.
- Deflation that has been hampering the Chinese economy since last year is now showing signs of spiralling, threatening to worsen the outlook for the world’s second-largest economy and raising calls for immediate policy action. Apart from food costs, consumer price growth barely registered in large swathes of the economy at a time when incomes are sagging. (Direct exposure to Chinese equities was recently removed in our Ci Global Accumulator Fund.)
- The Bank of Japan will continue to adjust policy provided the economy performs in line with projections, board member Junko Nakagawa said in comments that sent the yen to its highest level this year. While her remarks were largely in line with the BOJ’s standing policy stance, they came at a time when investors are intensely focused on the narrowing of the interest rate gap between Japan and the US.
- On Wednesday, oil prices surged as Hurricane Francine hit key oil-producing areas in the US Gulf of Mexico, leading traders to cover bearish positions. Brent crude briefly rose above $70 a barrel but had dropped below that level on Tuesday for the first time since 2021. Analysts from Citigroup and JPMorgan Chase predict prices could fall to $60 a barrel by 2025, which might help the US, and its peers, manage high borrowing costs without triggering a recession. Slowing global oil demand, particularly due to China’s economic cooling, has pushed prices to their lowest in three years, with demand growth at its slowest since the 2020 pandemic.
- OpenAI is reportedly in discussions to secure $6.5 billion in funding from investors, valuing the company at $150 billion. This new valuation, which excludes the raised capital, is a significant increase from the $86 billion valuation from its earlier tender offer this year, solidifying its position as one of the world’s most valuable startups. Additionally, OpenAI is negotiating a $5 billion debt raise through a revolving credit facility with banks.
- Nvidia CEO Jensen Huang says that the scramble for a limited amount of supply of chips has frustrated some customers and raised tensions. Huang’s company is experiencing strong demand for its latest generation of chips, called Blackwell. The Santa Clara, California-based business outsources the physical production of its hardware, and Nvidia’s suppliers are making progress in catching up, he said.
- Apple’s long-awaited, AI-boosted, iPhone 16 was unveiled on Tuesday, promising improvements in its Siri personal assistant as it rolled out new software. Apple Intelligence, the company’s AI software, will be used to improve Siri as well as enhance features such as understanding and identifying objects captured by the phone camera.
- Apple has lost its fight to dodge a $14.4 billion tax bill following a ruling by Europe’s top court on Tuesday, which dealt a blow to the world’s most valuable company just a day after it unveiled a host of product upgrades to boost sales. The European Court of Justice also upheld a $2.6 billion antitrust fine against Google, in a separate decision. The two ECJ rulings are final, which means the companies cannot appeal them.
- Huawei Technologies has announced the world’s first commercial device with two folds, claiming leadership in mobile design just after Apple unveiled its latest iPhones. The so-called trifold phone from Huawei took more than five years of development and promises to fit a 10-inch tablet in a pocket. Introduced in a live streamed event from Shenzhen, the new device is jostling for attention at the top of the premium market in China, where Huawei has reclaimed share from Apple over the past year.
- Oracle shares hit a record high, gaining as much as 15% on Tuesday morning in New York after the software giant reported profit and bookings that topped estimates, signalling that AI demand continues to boost its cloud computing business. Earnings, excluding some items, were $1.39 a share, Oracle said on Monday in a statement. Revenue increased by 7% to $13.3 billion in the period to end August. Analysts, on average, estimated a profit of $1.33 a share on sales of $13.3 billion.
- Automaker shares have been hit hard, and the gloomy outlook investors expected is worse than anticipated. The Stoxx 600 Autos & Parts Index is the second-worst performing subsector in Europe after mining, plagued by ailing demand for cars, margin pressure, and the region’s trade tensions with China. The gauge has plunged 24% since an April peak, hitting a 10-month low this week, and has a history of dropping further during downturns. Volkswagen, the region’s largest auto manufacturer, is now trading at its lowest valuation level on record.
- As at Thursday’s close the S&P 500 was up 3.46% for the week.
Local News
- Trade conditions in South Africa are expected to gradually improve from depressed territory despite subdued economic performance, after a notable surge in trade expectations following the formation of the Government of National Unity (GNU). The South African Chamber of Commerce and Industry’s Trade Expectations Index (TEI) increased by 11 index points to 66 in July – a level last recorded at the beginning of 2006. Expectations moderated somewhat in August, with the TEI at 62 index points.
- Senior political leaders confirmed that the GNU remains on track after a meeting with President Cyril Ramaphosa on Wednesday, despite recent public disputes among coalition partners. These disagreements include corruption allegations against ministers, debates on universal health coverage, and threats from the DA to withdraw over an education reform bill. Leaders described the meeting as constructive, with consensus on the need for regular consultations to resolve policy conflicts. Some leaders also requested a review of Cabinet processes. Ramaphosa’s spokesperson stated that the President is satisfied with the GNU’s progress.
- Pravin Gordhan, the founding commissioner of the South African Revenue Service (SARS), twice finance minister, and the face of the resistance against the Zuma and Gupta-led project of state capture, died on Friday morning. Writing for Daily Maverick, Trevor Manuel, himself also a former finance minister, said: “Pravin dedicated his entire life to service, a life I was privileged to witness for over 45 years. Pravin gave everything, and he was clear about that commitment.” Gordhan was admitted to the Wits Donald Gordon Medical Centre in Johannesburg on Tuesday after a recent cancer diagnosis.
- A private member’s Bill to Parliament introduced in 2018 by EFF leader Julius Malema to nationalise the South African Reserve Bank is being referred for public participation once again, against the objections of the DA. The SARB Amendment Bill is back in play thanks to MK’s backing.
- Budget cuts implemented by the National Treasury are defeating provincial health departments’ efforts to fill posts, placing strain on staff and forcing patients to wait longer for care, Health Minister Aaron Motsoaledi has told parliament. Vacancy rates for doctors range from 22.4% in the Free State to 5.5% in the Western Cape, while those for nurses ranged from 28% in the Free State to 5% in the Eastern Cape. More than two-fifths of senior management positions in the Northern Cape are empty. The Eastern Cape, the Free State, KwaZulu-Natal, and Mpumalanga reported that about a quarter of their posts for senior managers were unfilled.
- The government will spend about R691 million hosting the Group of 20 (G20) summit in South Africa next year including the meetings of sherpas and foreign ministers beforehand. South Africa will assume the rotational presidency of the G20 on 1 December after the summit in Brazil in November. The G20 summit will take place on 27 and 28 November 2025.
- SAA is implementing a business plan that, if successful, could enable it to be sustainable based on revenues generated from its operations. SAA has identified a range of assets, including its portfolio of real estate worth R5.5 billion, that could be leveraged to unlock funding options. However, it might have to, once again, try to find a strategic equity partner to provide the necessary cash injection. That would, however, depend on SAA’s shareholder, which is now the Department of Transport.
- In consultation with the CCMA, 4,875 South African Post Office workers were retrenched through a section 189 process after the entity entered business rescue in July 2023. There are now concerns that the post office could be liquidated, leading to employees and communities that rely on the state-owned enterprise being worried about further job losses and service disruptions.
- ANC-linked entities, including Thebe Investment Corporation, are competing for a national lottery deal valued at over R80 billion. Thebe, half-owned by Batho Batho Trust, has donated R60 million to the ANC since 2021. Hosken Consolidated Investments, led by Johnny Copelyn, who supported President Cyril Ramaphosa’s CR17 ANC presidency campaign, is also bidding. Corruption Watch has urged transparency in the tender process, while the National Lottery Commission plans to finalise the adjudication for the fourth national lottery license by 8 October.
- Former National Lotteries Commission chair Alfred Nevhutanda has delayed the forfeiture of millions of rand in assets by the state through a new court challenge over whether the Hawks have the powers to investigate the commission’s affairs. In total, the Asset Forfeiture Unit has preserved assets worth more than R344 million, including other properties, luxury vehicles, and two Ocean Basket franchises owned by people implicated in the plundering of lottery funds.
- So far, SARS has received more than 161,607 tax directive applications under the Two Pot system, with the gross amount of the lump sums for the applications totalling R4.1 billion. In the first week of the two-pot system, Alexforbes processed R1.5 billion in two-pot withdrawals, while Metropolitan has said 11,400 of its clients had completed the eligibility request within three days. Yet, Momentum says most people are opting not to cash out their “two-pot” system payout after they realise the tax implications.
- South Africa’s biggest banks, who must start issuing billions of rand next year for a new loss-absorbing class of debt, will partly get there by rolling unsecured liabilities into the proposed instrument, Moody’s Ratings has said. The South African Reserve Bank estimates South Africa’s six largest lenders will need to raise as much as R360 billion by 2030 in the new tool, which is designed to allow the orderly resolution of a big bank that runs into trouble. They need to start raising the funds in January.
- Capitec has revised its earnings forecast upward, with headline earnings per share expected to rise 35% to 37% as it signals strong financial performance for the six months to end-August. It attributes this positive outlook to lower credit loss ratios and robust growth in non-lending income, primarily driven by net transaction and commission income, including value-added services.
- Nestlé South Africa has sold Cremora to Groupe Lactalis of France for an undisclosed amount after a review of its local product range, which also includes Nescafé, Ricoffy, Maggi, Nespray, and Kit Kat. Cremora, a coffee creamer, is used in a fifth of all cups of instant coffee drunk in South Africa. Disposing of Cremora, which has been sold in South Africa for almost 80 years, will allow Nestlé to focus investment on other products that can deliver better value.
- At the time of writing, the rand had gained 0.4% against the USD and the ALSI was up 0.55% for the week.
Sources: Dynasty, BusinessLIVE, News24, Business Report, CNN, Bloomberg, BizNews.com, Daily Maverick, The Economist, NYT, UBS, etc.
