Markets started the week on a high note following reports of a softer stance on tariffs from the incoming U.S. administration. However, optimism waned as President-elect Donald Trump dismissed these claims, reviving concerns over trade policy. This triggered significant market volatility, with the U.S. dollar falling briefly before recovering.
U.S. economic data showed a mixed outlook. The ISM Services PMI for December showed a stronger than expected expansion of 54.1, although rising input costs raised concerns about continued inflation. The goods and services trade deficit widened to $78.2 billion in November, reflecting continued challenges in trade balances. Additionally, job market data remained resilient, with nonfarm payrolls exceeding expectations by adding 256,000 jobs in December. The unemployment rate was little changed at 4.1% and wages rose 3.9% year-on-year. However, Federal Reserve officials warned that inflation risks remain elevated, suggesting that interest rates could remain higher for longer. Trump’s proposal to extend the debt ceiling offers temporary relief but underscores the U.S.’ escalating debt burden.
Treasury yields rose during the week, driven by strong employment data and inflationary pressures. The 10-year U.S. Treasury yield reached its highest level since late 2023, signalling ongoing concerns about borrowing costs. Mortgage rates also continued to rise, reaching an average of 6.93%, putting further pressure on potential homebuyers.
Environmental concerns dominated headlines as Southern California battled three major wildfires, exacerbated by the most destructive storm in over a decade. The Palisades Fire burned more than 5,000 acres, destroyed high-value property and displaced thousands, making it one of the costliest wildfires on record.
In Europe, the economic picture was equally complex. Inflation in the eurozone ticked up to 2.4% in December, while core inflation remained steady at 2.7%. Despite cautious optimism from the European Central Bank, weak retail sales and declining sentiment weighed on the region. In the UK, bond market volatility surged, with the 10-year gilt yield reaching 4.8% – a level not seen since 2008 – amid concerns over fiscal policy and debt sustainability. Political uncertainty added pressure, as UK leaders scrambled for growth solutions.
China showed contrasting dynamics, with consumer inflation slowing to 0.1%, reflecting deflationary pressures. However, services activity rebounded sharply thanks to recent stimulus measures, and the People’s Bank of China pledged continued monetary support. Meanwhile, Canada faces political uncertainty following Prime Minister Justin Trudeau’s resignation amid declining approval ratings and party unrest.
Global markets were mixed this week. In the U.S., the Dow Jones fell by 1.86%, the S&P 500 by 1.93% and the Nasdaq by 2.35%. European markets fared better, with the Euro Stoxx 50 up 2.18% and the FTSE 100 up 0.30%. In Asia, Japan’s Nikkei 225 was down 1.77%, Hong Kong’s Hang Seng fell 3.44% and the Shanghai Composite lost 1.32%. Brent crude oil rose 3.65% to close at $79.26 per barrel, while bond yields rose.
Market Moves of the Week:
South Africa’s manufacturing sector remains under pressure, with the December PMI falling to 46.2 from 48.1 in November, the second consecutive month of contraction. Manufacturing output fell 2.6% year-on-year in November, underlining the sector’s struggles and the urgent need for government action to counter de-industrialisation.
The automotive industry showed mixed results. Vehicle sales rose 2.5% year-on-year in December, led by an 8.2% increase in passenger vehicles. Suzuki and other import brands like Haval, Chery, and Mahindra posted strong growth, while Motus’ Big 3 brands saw a 7% decline, continuing to lose market share to competitors.
On the JSE, the All Share Index lost 1.47% for the week, weighed down by the industrials (-4.57%) and financials (-2.33%) sectors, despite a strong 7.65% gain by the resource sector. The Rand weakened to R19.09 against the US Dollar and the SA 10-year bond yield climbed to 9.25%.
Chart of the Week:
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