Israel’s airstrikes against Iranian targets have rattled geopolitical nerves over the past week, but the impact on financial markets has been relatively muted so far. Gold and the US dollar, traditional havens during times of uncertainty, have shown only moderate reactions, with gold down 1.2% since 12 June and the US dollar 0.9% stronger, while the S&P 500 has been flat for the week.
Oil prices have climbed around 9% since the strikes began, and Brent crude is currently trading around $77 per barrel. However, this is far from the levels briefly breached when Russia invaded Ukraine in 2022 or during the Gulf War in the early 1990s. Indeed, oil was trading above $80 earlier this year, suggesting that investors are not repositioning their portfolios in anticipation of an oil crisis.
The restrained market reaction indicates that investors are hopeful that the conflict will remain contained rather than escalating into a regional war. Markets are, in particular, waiting for a clearer indication about whether the US will support Israel’s attacks on Iran. Only the US has the B-2 Stealth Bombers and the “bunker buster” bombs capable of reaching and damaging Iran’s most heavily fortified underground nuclear facilities.
US President Donald Trump has stated that he will decide within two weeks whether to offer military support to Israel’s mission of preventing Iran from becoming a nuclear power. This generous timeline might suggest that Trump is offering Iran time to come to the negotiating table. If this gambit is successful, oil prices would rapidly normalise and the associated danger to the market tension would pass.
On the flipside, if the US expands its role in the conflict to include direct strikes on Iran, the situation could escalate into a wider regional conflict. In the worst-case scenarios, Iran could blockade the Strait of Hormuz, through which roughly 20% of the world’s oil flows. If that happens, some analysts believe that oil could surge past $120 per barrel and perhaps even top the peaks reached during the Ukraine war.
Such a scenario would stoke inflation around the world, given that energy prices are a key driver of consumer inflation. A sudden spike in the oil price would surely constrain the US Federal Reserve from cutting interest rates, especially with Trump’s proposed tariffs already expected to raise prices. Central banks elsewhere in the world would also be reluctant to cut interest rates further.
The most recent comparable geopolitical event, Russia’s invasion of Ukraine in 2022, caused the price of oil to briefly shoot up 30% to touch $127 a barrel. This contributed to a wave of post-pandemic inflation that forced central banks to raise interest rates, resulting in a torrid year for global equities markets. Currently, the Fed expects to cut interest rates by around 50bps basis points by the end of 2025. These expectations could evaporate if inflation flares up.
Nonetheless, unless Iran moves beyond rhetoric to actions like closing the Strait of Hormuz or targeting neighbouring countries’ oil infrastructure or US military assets in the region, disruption is likely to be contained. Analysts at Citibank suggest Brent could hover between $75 and $78 per barrel if only around 1 million barrels per day of Iranian oil are disrupted. This is a manageable outcome for the markets.
In short, while the tensions are real and rising, markets are not pricing in any significant impact. In the absence of escalations such as a US military strike or a blockade of the strait, markets are likely to remain fairly nonchalant. If the conflict heats up, we will likely see a knee-jerk reaction from traders. These reactions tend to be short-lived. As always, it’s macroeconomics and corporate earnings that matter most to long-term performance.
“Markets got a reminder that tariffs aren’t the only potential source of market volatility. Right now, markets are signalling they expect the situation in the Middle East will remain contained, but any surprises could have an oversized impact on sentiment.”
– Chris Larkin at E*Trade from Morgan Stanley
“The ‘two-week deadline’ is a tactic Trump has used in other key decisions. Often these deadlines expire without concrete action… which would see the crude oil price remain elevated and potentially build on recent gains.”
– Tony Sycamore, analyst at IG
Global News
- Trump will decide within two weeks whether to strike Iran, amid escalating tensions following Israeli attacks on Iranian nuclear sites and warnings that continued strikes could destabilise Tehran’s leadership. According to White House spokeswoman Karoline Leavitt, Trump said he would weigh the possibility of upcoming negotiations with Iran before making his decision.
- Chinese President Xi Jinping on Wednesday condemned Israel’s strikes on Iran, calling them a “violation of international law.” While Russia, backed by Iran during its invasion of Ukraine, has stayed out of the conflict, it has warned the US that continued support for Israel could escalate tensions. Meanwhile, the foreign ministers of Germany, France, and Britain are meeting with their Iranian counterpart today to persuade the Iranian side to firmly guarantee that it will use its nuclear programme solely for civilian purposes and not military purposes.
- The Fed kept interest rates unchanged on Wednesday but penciled in two cuts by the end of 2025, while signalling a more challenging economic outlook, with projections showing slower growth, rising inflation, and higher unemployment. The central bank is also monitoring the economic impact of newly expanded tariffs, which are likely to increase costs and slow activity. “We’ll make smarter and better decisions if we just wait a couple of months or however long it takes to get a sense of really what is going to be the pass-through of inflation” from the higher import taxes, Fed Chairman Jerome Powell said. Ahead of the meeting, anticipating a hold, Trump criticised Powell for not decreasing rates, and went as far as to suggest he may appoint himself to lead the Fed.
- US retail sales fell by 0.9% in May, the sharpest drop this year, as consumers pulled back across seven of 13 categories after an early-year buying spree in anticipation of tariffs. These categories included building materials, gasoline, and motor vehicles, while spending at restaurants and bars, the only service-sector category in the retail report, saw its biggest decline since early 2023. According to Commerce Department data released on Tuesday, the slowdown reflects rising concerns over tariffs and personal financial pressures. This followed a downwardly revised 0.1% drop in April, marking the first back-to-back decline since the end of 2023.
- Foreign investors’ holdings of US Treasuries held close to a record high in April, despite recent turmoil in financial markets caused by Trump’s plans for the biggest tariff hikes in more than a century. Foreign holdings for April totalled $9.01 trillion, the second highest on record and down $35 billion from March, Treasury Department figures showed on Wednesday. The drop mainly reflected net sales by foreign private investors of US notes and bonds. Official entities were net buyers of longer-term Treasuries. Japan’s and Britain’s holdings increased, while China’s declined.
- Since Trump took office on 20 January, the US dollar has lost close to 10% of its value against the euro, pound, and Swiss franc and is down against every major currency in the world, Bloomberg research has found. The last time the dollar plunged this much and this fast was in 2010, when the Fed was printing money to prop up the economy in the wake of the financial crisis. The Trump administration’s policies, such as tariff increases, tax cuts, and pressure on the Fed, are driving investors away and contributing to the weakening of the dollar. This decline risks setting off a negative cycle of falling investor confidence, rising borrowing costs, and growing fiscal challenges, which could have serious consequences for the US economy and its overall financial stability.
- US importers are increasingly being asked by foreign counterparties to settle payments in currencies other than the US dollar, such as euros, Chinese renminbi, Mexican pesos, and Canadian dollars, according to Paula Comings, head of currency sales at US Bancorp. This shift is being driven by the dollar’s recent volatility, as foreign vendors look to reduce their exposure to further fluctuations in the currency. The trend is particularly evident in regions like Latin America and Asia, where exporters are more frequently invoicing trade in local currencies or alternatives like the euro or yuan.
- The US Senate on Tuesday passed a Bill to create a regulatory framework for dollar-pegged cryptocurrency tokens known as stablecoins, in a watershed moment for the digital asset industry. The Bill, dubbed the GENIUS Act, received bipartisan support, with several Democrats joining most Republicans to back the proposed federal rules. The House of Representatives, which is controlled by Republicans, needs to pass its version of the Bill before it heads to Trump’s desk for approval. The Bill, if approved, will create a regulatory regime for stablecoins, a rapidly developing financial product and industry, for the first time.
- Wealth in the US grew disproportionately quickly last year, where over 379,000 people became new US dollar millionaires, more than 1,000 a day. Private individuals’ net worth rose 4.6% worldwide, and by over 11% in the Americas, driven by a stable dollar in 2024 and upbeat financial markets, a UBS 2025 Global Wealth Report published on Wednesday found. The US accounted for almost 40% of global millionaires in 2024. UBS expects the US and China to lead global wealth expansion over the next five years.
- The EU is closer to banning all imports of Russian oil and natural gas, more than three years after Russia invaded Ukraine. The European Commission on Tuesday proposed that the bloc gradually ban purchases of Russian natural gas, whether supplied via pipeline or as liquefied natural gas. Under the plan, no new import contracts will be allowed from next year, while imports under existing short-term contracts for most EU member states will have to stop in a year’s time, and purchases under long-term contracts will be outlawed by the end of 2027.
- The Bank of England kept interest rates steady this week at 4.25%, with a more divided vote than anticipated as policymakers balanced sluggish economic growth against rising geopolitical risks. Meeting minutes revealed expectations of a sharp slowdown in wage growth later in the year, along with emerging signs of easing inflationary pressure from the labour market. Deputy Governor Clare Lombardelli noted the Bank is closely monitoring the potential inflationary effects of higher oil prices driven by tensions between Iran and Israel.
- The Swiss National Bank (SNB) cut its interest rate to zero and indicated it may cut further if necessary to deter investors from pushing up the franc. However, it noted that being on the verge of negative territory and cutting any more could lead to unwanted side-effects and challenges for parts of the economy, it did not detail what those might be, The quarter-point reduction is the SNB’s sixth consecutive move and was forecast by most of the economists surveyed by Bloomberg after the strong franc contributed to a decline in consumer prices for the first time in four years
- As Trump’s tariffs start to shut China out of the US, its biggest market, Chinese factories are sending their toys, cars, and shoes to other countries at a pace that is reshaping economies and geopolitics. So far this year, China’s global trade surplus is nearly $500 billion – a more than 40% increase year-on-year. China’s global market share for all categories of goods has risen sharply, according to an analysis by Leah Fahy, a China economist at Capital Economics. The flood of exports from China is the consequence of government’s policy to increase manufacturing past what the local market can absorb amid a slowing domestic economy.
- Microsoft is expected to cut thousands of jobs, particularly in sales, as part of the company’s latest move to trim its workforce amid heavy spending on AI. The cuts are expected to be announced early next month, following the end of Microsoft’s fiscal year, according to sources. These particular cuts will follow a previous round of layoffs in May that hit 6,000 people and fell hardest on product and engineering positions, largely sparing customer-facing roles like sales and marketing.
- Amazon on Tuesday warned staff that AI will enable it to have a smaller workforce in the future. In a blog post, Amazon CEO Andy Jassy said Generative AI will change the way work is done. He said the company will need fewer people doing some of the jobs that are being done today, and more people doing other types of jobs, although it’s currently hard to predict the outcome. Jassy added AI wouldn’t just affect Amazon but would also impact “every company and in every imaginable field”. A report from RationalFX indicates that the tech sector could cut 235,871 jobs this year.
- As at Wednesday’s close the S&P 500 was 0.07% up for the week.
Local News
- The partnership between the ANC and DA within South Africa’s new Government of National Unity (GNU) could mark a turning point in the country’s political landscape, according to Professor William Gumede, offering a rare opportunity to build a centrist consensus that bridges long-standing divides of ideology, race, and class. While the coalition faces significant challenges, including deep internal rifts and ideological tensions among member parties, the collaboration between the ANC and DA may lay the groundwork for a more inclusive, pragmatic approach to governance. If successful, it could reshape not only politics but also economic and social policy, steering South Africa toward greater stability, accountability, and shared progress.
- China’s announcement last week that it is granting duty-free access to all 53 African countries with which it maintains diplomatic relations has prompted Wesgro, the Western Cape’s trade, tourism, and investment promotion agency, to deepen ties with the country. The province, which exported R11.8 billion in goods and services in 2024, aims to triple exports by 2035, making growth in new markets essential. China’s move aims to deepen trade ties and open the Chinese market to a wider range of African products.
- DA Federal Council Chairman Helen Zille said on Tuesday that she may step down from her current role if she is elected Johannesburg mayor and will also recuse herself from the internal decision-making election process. Zille, a former Western Cape premier and former mayor of Cape Town, is among 13 contenders vying for the DA’s nomination ahead of the 2026 municipal elections. Representatives who sit on the selection panels include leaders from provincial and regional party structures and an ombud to resolve disputes.
- The Financial Action Task Force (FATF) has credited South Africa with “substantially” completing all 22 items on the action list that it was required to address after the international body greylisted the country in February 2023 because of weaknesses in the country’s regime to combat money laundering and terror financing. The completion of the 22 actions in the action plan paves the way for an on-site visit by the FATF Africa Joint Group. If the outcome is positive, this would be the final step before the greylisting is lifted in October. Although the date of the visit has yet to be confirmed, National Treasury is already busy with preparations.
- South Africa is moving to end load shedding with a R440 billion plan to open its electricity transmission network to private investment. Led by the Minister of Electricity and Energy Kgosientsho Ramokgopa, the project will add 14,000 km of high-voltage lines to unlock stranded renewable energy from the Cape provinces. With Eskom and the state unable to fund the expansion alone, it is seeking a “bespoke financing instrument” backed by a Credit Guarantee Vehicle developed with the World Bank to help attract private partners. If successful, this public-private push could strengthen the grid and bring lasting energy stability.
- Toyota’s Japanese insurer, Tokio Marine & Nichido Fire Insurance, has filed a R6.54 billion lawsuit against Transnet, the KwaZulu-Natal Department of Transport, and the eThekwini Municipality over flood damage to Toyota South Africa Motors’ Prospecton plant in Durban in 2022. The case, now before the Durban High Court, stems from the collapse of flood defences that forced a four-month production halt, TSAM’s worst crisis to date, and could pave the way for further litigation from companies impacted by South Africa’s failing infrastructure.
- South Africa has fallen four places, to 64 out of a measured 69 countries between 2021 and this year, according to the latest rankings of economic competitiveness as measured by the International Institute for Management Development World Competitiveness Center (IMD). The country did well in efficiency, but worse in economic performance and government efficiency. At 64, South Africa is behind Argentina and Ghana but slightly ahead of Namibia and Nigeria. Switzerland, Singapore, and Hong Kong topped the latest annual rankings, “reflecting their strong performance in global indicators of quality of life,” IMD said in a statement on Wednesday.
- The inflation rate held steady and in line with expectations at 2.8% in May as uncertainty around the outlook for price-growth mounts, complicating the task for the central bank when it meets to discuss its monetary policy stance next month. Since the last Monetary Policy Committee meeting in May, the price of oil has increased, while the South African Reserve Bank will also have to assess the economic impact of the potential reinstatement of Trump’s reciprocal tariffs on 9 July.
- Export sales plunged in the second quarter, tracking weak business sentiment in a manufacturing industry weighed down by political uncertainty, high electricity costs and skills flight, among a plethora of headwinds. New domestic and export orders dropped. Confidence in the sector was also hurt by persistent uncertainty amid local and global pressures as well as the water crunch in the country’s economic hub of Gauteng. This is according to a second-quarter Absa manufacturing survey, conducted by the Bureau for Economic Research at Stellenbosch University, which was released yesterday.
- Kyalami Grand Prix Circuit is planning an overhaul that will cost as much as $10 million as South Africa prepares to submit a bid to host its first Formula 1 race in three decades. Kyalami needs several upgrades to get grade 1 accreditation from the industry body, the Federation Internationale de l’Automobile, the track’s owner, Toby Venter, said at the circuit on Wednesday. Upgrades will take roughly three months if undertaken in one go and ensure that the track is ready to host a Formula 1 or any other international motorsport event.
- As at the time of writing, the rand was 0.67% weaker against the dollar, and the ALSI was 0.36% down for the week.
Sources: Dynasty, CNN, Bloomberg, BusinessLIVE, Business Report, IOL Business, Reuters, NYT, WSJ, Daily Maverick, AFP, Skynews, etc.
