Markets still dancing to the tariff tune

Tariffs take centre stage – again

Another month, another spin on the geopolitical roulette wheel. Volatility made its usual appearance; less theatrical than last month’s drama, but dramatic enough to keep traders on edge. The dominant theme? Tariffs, again. Because apparently, the world’s economies now hinge on the mood swings of a one man with a big pen.

UK-US trade deal offers a brief respite

The month began with what could generously be described as a diplomatic breakthrough: the UK and US reached a trade agreement. This relative calm followed the spectacle of Trump’s now-infamous “Liberation Day” – a televised performance slapping wide-ranging tariffs on most global economies. In contrast, this trade deal offered a rare moment of clarity. Markets responded with predictable relief: volatility dipped, and risk assets rallied. For a brief moment, it looked as though the White House had discovered the merits of dialogue.

China and the art of the (tariff) deal

Enter China. Following a period of escalating tension (and some eye-watering 100%+ tariffs), Washington and Beijing returned to the table. The outcome? A rollback of tariffs by a mathematically generous 115% – a number that, while technically nonsensical, brings levies back down to the familiar 10% threshold. Markets, ever eager to celebrate even the illusion of progress, surged. The ZAR and its fellow emerging market peers benefitted as investors embraced a “risk-on” mindset.

Brexit rewinds and stalemates in Eastern Europe

Across the Atlantic, Prime Minister Keir Starmer initiated talks with the EU to unwind select Brexit provisions – an effort to reintroduce sanity into a process long defined by its absence. Meanwhile, in Eastern Europe, the Russia-Ukraine conflict slogs on. Ceasefires are promised, breached and re-promised in a cycle so predictable it barely moves the market anymore. President Donald Trump, ever the optimist when it suits him, claims progress. Traders remain unimpressed.

Ramaphosa’s Washington visit falls flat

Then came a diplomatic detour from Pretoria to Washington. South Africa’s President Cyril Ramaphosa visited the White House in what Bloomberg dubbed the “Oval Office Ambush.” Flanked by businessmen and golf personalities – presumably to appeal to Trump’s sensibilities – Ramaphosa attempted to allay fears of domestic instability and the claims of a white genocide. The delegation also made appeals for US support in tackling crime and poverty. While not a debacle, it certainly wasn’t a win. Markets reacted with a resounding shrug.

SA budget: No surprises, just shrinking wiggle room

On the same day, South Africa delivered its third iteration of the national budget speech. With the GNU coalition finally agreeing to scrap a 0.5% VAT hike, there were few surprises. Still, debt servicing costs ticked up to 22% of the budget – a worrying figure for a country with a tax base that’s already wrung dry. The ZAR, unsurprisingly, held steady.

Tariff shock (and walkback) from Washington

As the month drew to a close, markets exhaled – just in time for another Trump bombshell. A 50% tariff on EU imports was announced, effective 1 June. Cue a spike in exchange rate volatility and a predictable dip in equities. Days later, the move was postponed to 9 July. Crisis averted – for now.

Courts complicate the tariff timeline

And just when the tariff saga couldn’t get more dramatic, a US court weighed in. In a surprise ruling, it found that Trump had overstepped his authority in imposing the duties, declaring the implementation unlawful. Naturally, the White House is expected to appeal, but the legal uncertainty adds yet another layer of volatility to an already overloaded script.

SARB rate cut and target shift buoy the ZAR

Closer to home, the South African Reserve Bank announced a 25bps rate cut on Thursday, 29 May. More notably, the SARB stated it would revise its inflation target to a firm 3% – down from the longstanding 3 - 6% band that has been in place for nearly 25 years. The market welcomed the clarity, and the ZAR rallied in response, closing at a rather respectable R17.78 against the USD.

Rand stages a comeback

All in all, May delivered an unexpectedly strong showing for the ZAR. The currency rebounded by 10% from its lows during the GNU VAT fallout and Trump tariff turbulence. Looking at the numbers: the ZAR opened the month at R18.57 to the USD, R24.81 to the GBP and R21.07 to the EUR. It closed at R17.97, R24.23 and R20.44 respectively – an impressive recovery by any standard.

Progress, as ever, remains incremental and fragile. But for now, the markets seem content to take what they can get.

Get our Daily Rand Report delivered straight to your inbox every weekday to keep on top of everything happening with the ZAR.