SA Fixed Income
June 27, 2025Cadiz Fund News – July 2025
July 8, 2025
Global markets ended a volatile May on a firmer footing, as investors sought clarity from the post trade policy confusion. World markets initially bounced higher on the back of a larger than expected 90-day tariff reduction between the US and China mid-May. However, this was followed by Moody’s downgrading the US’s credit rating, resulting in a broad selloff in the markets. On the back of this, the Nasdaq surged ahead closing May higher by 9.6%, with the S&P 500 up 6.3% for the month, recording its biggest monthly gain since November 2023. The Dow Jones lagged somewhat, closing the month higher by 3.9%.
The trade vacillations by President Trump have been euphemistically termed by some as the ‘TACO’ trade, denoting ‘Trump Always Chickens Out. This has come to characterise the President’s second term, with stocks falling in response to higher tariff announcements and then rebounding when he backs down. A prime example of this was the threatening of a 50% trade tariff on EU goods after a minerals deal was signed with Greenland, which was then postponed until mid-July to allow for trade negotiations.
On the US Economics front, US headline inflation for April (CPI) printed a better-than-expected number at 2.3% YoY compared to the March reading of 2.4%, with core inflation, which excludes energy and food, rising 2.8% YoY, the lowest core inflation print since March 2021. US consumer confidence improved in May, rising to 98, from the 85.7 print of April, and halting five months of declines due to the tariff uncertainty. The Fed’s preferred inflation gauge, personal consumption expenditure (PCE), rose in line with market expectations at 2.5% YoY, down from the April print of 2.7% YoY. As expected, the US FED kept rates unchanged at the May meeting stressing the continued uncertainty tariffs would have on the US economy.
In a sweeping ruling, a US trade court blocked most of Trump’s tariffs by finding he had overreached his authority by the imposition of across-the-board tariffs on imports from the US’s trading partners. The court further stated that the US constitution gives the US congress the exclusive authority to regulate commerce activities with other countries. This was further bolstered by an appeals court ruling at the end of May granting a stay of duties until June, further complicating matters. The new tariff regime has currently had little effect on US inflation (firms are absorbing costs and drawing down on inventories), which raises the risk of a potentially delayed inflation spike, and a slowdown in growth. The Fed is therefore expected to deliver two rate cuts later in 2025.
In the UK the FTSE ended May higher by 3.3% as inflation rose unexpectedly to 3.5% YoY, compared to the 2.6% print in March, with core inflation also rising to 3.8% in April, vs the March print of 3.4%. Continued trade tensions are expected to shave 0.3% off UK GDP by 2026, which reflects global uncertainty, softer global demand, and higher US tariffs. Despite the challenges it faces in calibrating policy amid persistent inflation and higher long-term rates, the BoE is expected to continue with its approach of gradual easing. Overnight index markets are pricing at least one more rate cut by year end.
European markets ended May higher with the Dax ending up 6.7%, and the Cac 40 up by 2.1%. This market strength was despite the continued uncertainty regarding the trade environment and bolstered by the historic fiscal spending plans by Germany. Strong corporate earnings coupled with attractive market valuations continue to position Europe as an attractive and viable investment alternative to the US with the ongoing trade wars and US fiscal debt. Although inflation is decelerating toward target levels, driven by lower energy prices and weaker demand, concerns remain about heightening trade tensions, which could dampen external demand and increase uncertainty. Having already cut rates three times in 2025, the ECB is expected to implement two further rate cuts before year end, balancing normalisation with price stability, as markets continue to reflect cautious sentiment with persistent volatility and tariff uncertainty.
Asian markets followed their Western counterparts firmer notwithstanding the Trump administration’s plan to broaden the restrictions on China’s tech sector, as well as the continued global uncertainty of tariff wars. This friction was heightened at the end of May when in a social media post President Trump claimed that the Chinese had violated the preliminary trade agreement. Despite this, the Hang Seng ended the month higher by 5.3%, with the Shanghai composite higher by 2.1%, having received a mid-month pick me up on the back of the 90-day tariff cooling off period. On the economic front, the official May manufacturing PMI improved slightly to 49.5 compared to the 49.0 of April, still below the 50-point mark, with the non-manufacturing PMI numbers printing at 50.3 compared to the 50.4 in the previous month. Although trade tensions continue to remain a concern, progress in the negotiations process has reduced the need for immediate stimulus, allowing Chinese policy makers to adopt a more reactive stance. Chinese inflation is expected to remain subdued, driven by industrial overcapacity as well as being compounded by the continuing property slump.
The Nikkei in Japan closed the month firmer, higher by 5.3% despite the continued concerns around the impact of US tariffs on the Japanese economy. Inflation in Japan accelerated, printing at 3.5% YoY in April compared to the March print of 3.2%. The tariff uncertainty and continued negotiations between Japan and the US continue to prompt caution from the BoJ regarding to the timing and the extent of further interest rate moves. Japanese wage inflation is expected to continue to sustain core inflation above the BoJ’s 2% target through 2025. Japan is expected to counter US tariffs, which includes US$6.3billion in in utility spending and the expansion of the Japan Finance Corporation loan programmes for enhanced insurance support. Despite these countermeasures, the policy uncertainty continues to put a dampener on Japanese growth and inflation outlook, leaving the BoJ on a cautious footing in this normalisation cycle.
South Africa
Locally, the JSE followed the global trend, with the ALSI ending May higher by 3%, on the back of broad-based gains. The industrial sector was the leading light, ending the month higher by 3.9%, followed by the resources sector, up 2.25% for the month, property up by 1.9% over the period and financials being the laggard up 1.8%. On the stock selection front, Naspers and Prosus were up around 6% for the month as Tencent Holdings reported a better-than-expected rise in sales YoY, Sibanye up 27.5% for the month. Sasol was up 26.6%, Northam up 21.5%, Tiger Brands up 19.4%, and Glencore and Impala up 16.5%.
Headline inflation for April slowed slightly, printing at 2.8% YoY compared to the March print of 2.7%, and core inflation eased to 3.0% YoY in April compared to the March print of 3.1%, pointing to a continuous easing of inflationary pressures across the domestic economy. At its May 29 meeting, the MPC cut the repo rate by twenty-five basis points, taking the prime lending rate to 7.25%.
Notably, the third iteration of the national budget reflected fiscal adjustments and a weaker economic outlook. Growth was adjusted lower to 1.7% over the MTEF, and Treasury also cut the 2025 real GDP forecast to 1.4%, with weaker fixed investments and exports cited as a significant factor. The contentious VAT hike was taken off the table, but bracket creep and the new added fuel levies could add further strain to households, whilst social grants are to rise in line with inflation.
