Margaret Thatcher, the former British Prime Minister, who once declared that “The lady’s not for turning,” was contemptuous of politicians that backtracked on political convictions in the face of public or market pressure. But economic reality and stakeholders can force the most powerful political leaders and parties to backtrack on threats and promises.
In recent days, both US President Donald Trump and South Africa’s ruling African National Congress (ANC) have staged dramatic reversals on economic decisions they previously passionately defended. The long-term effects remain to be seen, but these U-turns reflect the power of external forces to reshape political reality.
In the US, Trump was forced to soften his stance on import tariffs in the face of pressure from business leaders and economists about the potential economic fallout. Once threatening tariffs against China as high as 145%, Trump signalled on Tuesday in the Oval Office that these rates “will come down substantially,” suggesting a de-escalation of the trade war. In addition, following heated rhetoric about firing Federal Reserve Chairman Jerome Powell, Trump suddenly reversed course, stating he had “no intention” of removing him.
The impact on the bond market was no doubt an important factor, with yields on 20-year bonds topping 4.9% on Monday as markets digested Trump’s threats.
Similarly, the effect of trade wars on the stock markets prompted the rethink. The S&P 500 and Nasdaq both entered bear market territory this year, with the Nasdaq still remaining in that negative cycle. Behind the scenes, executives from US retail giants warned the Trump administration of looming supply chain breakdowns and empty shelves.
Markets responded positively to Trump walking back his tough stances on the Fed and tariffs, with the S&P 500 bouncing 5.6% since Monday and the Nasdaq gaining 8.2%. Bond yields also improved by 0.1% at the time of writing, and the US dollar had strengthened by 1.66%
However, many market commentators warned that it will take time for markets to completely recover. It also remains to be seen for how long Trump will hold back on pursuing his long and firmly held preferences for high tariffs and low interest rates in the face of the current dissent.
Meanwhile, in South Africa, the ANC retreated from a VAT increase. Finance Minister Enoch Godongwana’s plan to raise VAT by 0.5 percentage points was scrapped days before it was to take effect. The about-turn followed legal action led by the Democratic Alliance (DA), South Africa’s second-largest party and a key player in the ANC’s fragile coalition government.
The DA filed an urgent court application challenging the legality of the increase, arguing that the process bypassed parliamentary authority and burdened the poor. With other coalition partners and major unions also opposing the tax hike and National Treasury fearing a loss in the courts, the Finance Minister conceded before the matter could be ruled on.
Though the ANC framed the reversal as a shared political decision, the DA has claimed credit, citing both legal and political pressure. “We can win battles, not by the grace and favour of kind concessions of the ANC, but because we have the numbers in Parliament and we have the muscle in the courts,” said DA Federal Chairman Helen Zille.
The impact on the rand following this policy reversal has been relatively muted, in the face of a stronger dollar. As we noted last week, the rand had retraced most of its losses in early April because markets felt reassured that the Government of National Unity (GNU) would continue to hold. And according to our currency decoder, the rand still remains moderately undervalued versus the US dollar.
In both Washington and Pretoria, external pressure – rather than principle – dictated the path forward for these governments, demonstrating that whether from Wall Street or the High Court, institutions outside the executive still have some power to correct overreaching politicians.
“It is never too late to be wise.”
– Daniel Defoe, author of Robinson Crusoe
“While there has been understandable relief as evidence of a Trump put reemerged following the extreme market conditions that we highlighted yesterday morning, the genie is still out of the bottle on policy unpredictability.”
– Deutsche Bank Research economists
Global News
- Facing pressure from financial markets, business leaders, and top advisers, President Trump softened his stance this week on two key targets – Federal Reserve Chair Jerome Powell and China. Amid concerns over market volatility and warnings from major retailers about supply chain disruptions due to tariffs, Trump signalled a willingness to ease his aggressive trade approach, including a possible reduction in tariffs on Chinese goods if a deal is reached. The Wall Street Journal reported on Wednesday that the range of duties could come down to between 50% to 65% instead of the recently imposed 145%.
- Trump also backed off previous threats to fire Powell. This is despite recent outbursts that had fanned concerns that he would oust him, sending jitters through markets. Trump criticised Powell for warning that the White House’s sweeping tariffs policy would likely reignite inflation. The President said he would like Powell to “be a little more active in terms of his idea to lower interest rates”.
- While these shifts calmed investors and briefly boosted markets, officials emphasised that no unilateral tariff cuts would occur without reciprocal action from China, and a full trade agreement could take years. The episode highlights the outsized influence of Trump’s decisions on economic sentiment and market stability.
- Fed Reserve Bank of Cleveland President Beth Hammack yesterday ruled out a May interest-rate cut but said the central bank could move as early as June if it has clear evidence of the economy’s direction. The probability investors assign to a June rate cut through interest-rate swaps briefly rose to about 65% before reversing some of that move. (A rate cut should be supportive of equity market valuations).
- Safe-haven gold surged to a new record high of $3,500.05 per ounce on Tuesday, before Trump walked back on threats to dismiss Powell. Following his reversal and suggestions of a potential trade deal with China, gold has surrendered part of its gains to trade at $ 3,293 per ounce as at the time of writing. So far this year, gold has climbed more than 25%. North American and European investors have added approximately 240 tons of gold to exchange-traded funds by mid-April, recouping more than half of the 441 tons they offloaded over the past three years, according to World Gold Council data.
- Trump’s approval rating has steadily declined over his first three months in office, according to an average of polls compiled by The New York Times. His approval has dropped to around 45%, down from 52% just a week after taking office. The data shows that roughly half of Americans now disapprove of his performance. While it’s common for presidents to see a dip in approval early on, Trump’s decline has been slightly steeper than that of his predecessors.
- The International Monetary Fund (IMF) expects US economic growth to slow to 1.8% in 2025, compared with a 2.8% expansion in 2024, it said on Tuesday. The downgrades add weight to similar warnings from JPMorgan Chase & Company and Goldman Sachs Group, saying the chances of a recession in the US have spiked. Global economic growth will slow to 2.8% this year from 3.3% last year and significantly below the historical average, the IMF forecast in its World Economic Outlook report. The body said economic gains from AI will boost global output by around 0.5% a year between 2025 and 2030.
- The IMF also downgraded its economic growth forecasts for numerous other countries, including Germany, UK and South Africa, joining a chorus of warnings from economists and business leaders about economic damage from US tariffs.
- Britain will not rush into a trade deal with the US or change its food or car safety standards, Rachel Reeves, the British chancellor of the Exchequer, said in Washington on Wednesday. Reeves said only that she wanted to reduce trade barriers between Britain and other countries. The British government has been pursuing a US trade deal as it hopes to soften the economic blow that British businesses are facing from higher tariffs.
- France softened its approach to the trade clash with Trump as finance chief Eric Lombard said he agreed with the US administration’s analysis of global commerce and called for a “win-win” transatlantic partnership. Lombard told a gathering of executives in Washington on Wednesday that he hoped to avoid an EU retaliation to tariffs and instead strike a “genuine free trade agreement” with the US. He also said the US is right to call out non-market practices and industrial over-capacities.
- The US said it’s made “significant progress” toward a bilateral trade deal with India following talks between Vice President JD Vance and Indian Prime Minister Narendra Modi on Monday. Terms of reference for negotiations on “a new and modern trade agreement” are being finalised, the White House said in a statement during Vance’s four-day visit to India. Barring a trade deal, India faces tariffs of up to 26% on its exports to the US under Trump’s 2 April levies, currently on a 90-day pause.
- Businesses in Germany and Britain produced less this month amid worries about Trump’s near-universal tariffs, in another sign that the global damage from his import levies is adding up. Various S&P Global purchasing managers’ indexes showed on Wednesday that private sector output contracted in Germany, Europe’s biggest economy, and the United Kingdom.
- Insiders, including Meta CEO Mark Zuckerberg, Oracle Corporation CEO Safra Catz, and JPMorgan Chase & Company CEO Jamie Dimon, cashed out shares worth billions of dollars before Trump’s tariff announcements upset markets. Zuckerberg sold 1.1 million shares worth $733 million in the first quarter, Catz unloaded 3.8 million shares worth $705 million before the tech giant’s stock fell more than 30%, while Dimon sold about $234 million of stock during the quarter.
- On Tuesday, Tesla reported a larger-than-expected drop in quarterly revenue as it faces headwinds including Trump’s escalating trade war and a consumer backlash over CEO Elon Musk’s role in the administration. Musk vowed to pull back “significantly” from his work with the US government, assuaging investors concerned about the carmaker’s worst quarter in years. Its overall sales fell 9%, while its core business of selling cars fell 20%. Tesla’s shares extended gains as Musk spoke, rising as much as 7.8% after regular trading in New York.
- Chinese electric vehicle giant BYD, which is already ahead of Tesla in EV sales, unveiled its new luxury car, Z, under its premium Denza line on Wednesday. The flashy new deep-blue model – showcased at the opening of Auto Shanghai, China’s largest automobile show – indicated that BYD is vying for a place against higher-end Western brands such as Porsche and Mercedes-Benz.
- Google parent Alphabet reported first-quarter revenue and profit that exceeded analysts’ expectations, buoyed by continued strength in its search advertising business. First-quarter sales, excluding partner payouts, were $76.5 billion, the company said on Thursday in a statement, slightly higher than expectations. The shares, which have declined 16% so far this year, rose more than 6.8% since Monday.
- Novo Nordisk slumped as much as 9.8% amid concern that a weight-loss pill from rival Eli Lilly & Company will steal market share from bestsellers such as its injected blockbuster Ozempic. The decline came on the first day of trading after the Easter Weekend, after Lilly said that an experimental pill helped patients shed weight and control blood sugar about as well as Ozempic. The Lilly study exacerbates the pressure on Novo, whose market value has dropped by a third since the start of the year.
- Roche said on Tuesday it would invest $50 billion in the US over the next five years, creating more than 12,000 new jobs in the latest investment by companies reacting to US President Donald Trump’s tariffs policy. The Swiss pharma giant said the new positions would include nearly 6,500 in construction and 1,000 at new and expanded facilities. The announcement comes as drugmakers unveil investments to deal with tariffs from the Trump administration, which is seeking to boost domestic manufacturing.
- L’Oreal shares gained as much as 2.6% early on Tuesday, the first day of trading in Paris following the Easter weekend, after the owner of brands such as Aesop and Kiehl’s published financial results. This comes after the cosmetics company reported resilient sales growth, led by demand for high-end make-up and perfumes. Overall, like-for-like sales rose 3.5% in the first quarter, L’Oreal said last week. This was almost three times as much as analysts had expected. Its shares are down about 21% over the past 12 months.
- As at Thursday’s close the S&P 500 was 3.1% up for the week.
Local News
- National Treasury announced just after midnight on Thursday morning that the VAT rate would remain unchanged, following a political standoff within the Government of National Unity (GNU). This decision ends a two-month debate over a proposed tax hike, which was challenged in court by the DA and EFF on Tuesday. The DA, which was unwilling to withdraw from the GNU, and the EFF fought to block the increase in the Western Cape High Court, with a ruling that was expected on 29 April. The 0.5 percentage point VAT hike was initially set to take effect on 1 May.
- Now, government faces the challenge of raising an additional R75 billion in revenue, potentially through measures like cutting expenditure, adding a fuel levy, revising zero-rated VAT items, or scaling back on initiatives such as increasing the number of nurses. Meanwhile, bonds gained, with the yield on 10-year securities dropping by 6bps, and the rand reversed an early gain, trading 0.3% weaker against a stronger dollar.
- The fiscus is set for a multi-million-rand windfall from the restructuring of mining giant Anglo American, which includes the demerger of Anglo American Platinum. The sale will net the South African Revenue Service $388 million (R7.2 billion) in dividend tax as well as $63 million in capital gains taxes as a result of the process. In terms of the budget review released on 19 February, the revised tax revenue estimate for 2024/25 was revised downwards by R19.3 billion.
- The IMF slashed South Africa’s economic growth projections for 2025 by 0.5 percentage points to 1% on the back of pending slowing trade activity amid rising US tariffs. The IMF also projected South Africa’s real GDP to only grow 1.3% in 2026. This is a significant downward revision from its January expectations of 1.5% and 1.6% growth this year and the next. The IMF also warned that the public debt level will rise to 88% of the size of the economy by 2030 unless the government implements a tighter fiscal policy.
- President Cyril Ramaphosa spoke with Trump yesterday about the strained relations between their countries since Trump’s return to office in January. In a statement on X, Ramaphosa said the two leaders agreed to meet soon to address a range of issues. He also mentioned that they discussed Russia’s war in Ukraine, which both have pledged to help end. Meanwhile, Ukrainian President Volodymyr Zelensky cut short his visit to South Africa and returned home following heavy Russian missile and drone strikes on Kyiv.
- Government has established an inter-ministerial committee tasked with responding to the US’ imposition of 30% tariffs on South African products entering the US, Agriculture Minister John Steenhuisen has revealed. Steenhuisen said the committee comprising himself, Trade, Industry and Competition Minister Parks Tau, and Department of International Relations and Cooperation Minister Ronald Lamola, would spend the next three months trying to find a deal to present to the Americans as South Africa seeks to retain access to the US market on a favourable basis.
- Even though the rate of increase in the cost of living declined by 0.5 percentage points, from 3.2% to 2.7% year-on-year in March and beating expectations, the South African Reserve Bank will likely remain cautious about cutting interest rates next month due to current geopolitical tensions. This better-than-expected inflation print marked the lowest reading since June 2020.
- SAA has submitted a five-year, two-phase corporate turnaround plan to the government that could see it going to the market for a R2.25 billion investment facility and again seeking a strategic equity partner. According to the restructuring plan, which Business Day has seen, SAA intends to overhaul its governance structure, creating a three-tier entity including a group holding company, which would have under it a property company, an aircraft asset management company, and the airline itself.
- Shares in Africa’s biggest pharmaceutical manufacturer, Aspen Pharmacare, plunged by a third in early trade on Wednesday morning after it announced that a contractual dispute could slash core earnings for its 2025 financial year by as much as R2 billion. The decline cut R22 billion off its market capitalisation, dropping its value on the JSE to R50 billion. Aspen did not disclose the company involved in the dispute, saying only that it related to the loss of a manufacturing and technology agreement for mRNA products.
- Capitec increased headline earnings 30% in the year to February due to its diversification initiatives over recent years. The share price surged 7.1% on the JSE on Wednesday afternoon. Its client base now exceeds 24 million, with 13 million clients actively engaging with their app. The bank has developed models on how the country’s exclusion from the African Growth and Opportunity Act and withdrawal of US aid might affect its loan book.
- MTN, Africa’s largest mobile operator, is under scrutiny after its Chairman, Mcebisi Jonas, was appointed special envoy to the US. Concerns have surfaced over the quality of disclosures in recent financial reports related to US terrorism litigation, approved during Jonas’s tenure. He will remain on MTN’s board. In an opinion piece, journalist and Foreign Policy Research Institute fellow Michael Walsh questioned whether Jonas can effectively take on his government duties, given what he describes as a questionable track record in overseeing corporate risk
- As at the time of writing, the rand was 0.3% weaker against the dollar and the ALSI was 1.2% up for the week.
Sources: Dynasty, IOL, Business Report, BusinessLIVE, Mail and Guardian, CNN, Bloomberg, AFP. Moneyweb, Reuters, NYT, etc.
