In April, the US remained at the centre of escalating trade tensions, with China imposing retaliatory tariffs and restricting exports of critical materials. These developments fuelled market volatility and heightened fears about global economic growth. Reflecting this, the IMF revised its 2025 global growth forecast down to 2.8%, from 3.3%.

The US Federal Reserve held interest rates steady in April, maintaining its data-dependent approach. However, tensions flared between President Donald Trump and Fed Chair Jerome Powell, with the President openly criticising Powell’s decisions. This reignited speculation about Powell’s potential removal, unsettling markets that had been hoping for greater policy stability.

The European Central Bank (ECB) took a more dovish stance, cutting its key interest rates by 25 basis points. The ECB's Governing Council emphasised that the disinflation process remains on track and that inflation is expected to stabilise around the 2.0% target over the medium term. Meanwhile, the Bank of Japan (BOJ) kept its interest rates unchanged, citing continued caution amid global trade tensions and persistent domestic economic challenges.

Bond yields across major markets declined in April. Germany and France saw their 10-year yields fall by 29 bps, closing at 2.44% and 3.17%, respectively. Similarly, the UK 10-year yield declined by 23 bps to 4.44%. In contrast, the US 10-year yield was relatively flat, edging down by just 4 bps to end the month at 4.26%.

In local news, the South African government continued to face challenges within its coalition as it struggled to pass the national budget. In April, the National Treasury announced a reversal of the planned VAT increase from 15% to 15.5%, originally set for implementation on 1 May. The reversal, prompted by political opposition from GNU members citing risks to low-income households, is expected to create a R75 billion shortfall over the medium term. Retailers and financial institutions, which had already invested in system upgrades, incurred further costs due to the sudden change. The National Treasury is now preparing a revised budget, with the new tabling date set for 21 May 2025.

Headline CPI inflation in South Africa eased to 2.7% year-on-year (y/y) in March 2025, slightly below market expectations. The main driver was a sharp decline in fuel prices, underpinned by a significant drop in global oil prices. Although the rand weakened, the decline in oil prices outweighed the impact of the currency depreciation. Core inflation, which excludes food, non-alcoholic beverages, fuel, and energy, also surprised to the downside, falling to 3.1% from 3.4% in February. The South African Reserve Bank’s Monetary Policy Committee did not meet in April and expectations have risen for a rate cut at the May meeting.

In the local bond market, yields on the short end of the curve declined, with the R2030 falling by 28 bps. Conversely, long-term yields rose due to heightened fiscal risks, as reflected in a 20 bps increase in the R2048. The All-Bond Index (ALBI) posted a 0.76% return, supported by gains in the front and belly of the curve, while the back end detracted from performance.

Inflation-linked bonds underperformed in April. Yields on long-dated instruments, such as the I2050, rose by 11 bps, while short-dated bonds like the R210 saw yields fall by 3 bps. As a result, both the FTSE/JSE Inflation-Linked Index (CILI) and the Government Inflation-Linked Bond Index (IGOV) recorded negative returns of -0.19% and -0.22%, respectively.

Money market returns remained under pressure in April as short-term interest rates continued to decline. The 3-month JIBAR decreased by 2bps, ending the month at 7.542%, while the 12-month JIBAR dropped by 27 bps to 7.825%, reflecting rising expectations of a rate cut. The Alexander Forbes Short-Term Fixed Interest (STeFI) index returned 0.61% for the month.

The rand remained under pressure against the US dollar throughout April, with heightened volatility driven by both global and domestic factors. The currency briefly weakened to a low of ZAR19.76/USD early in the month as tensions escalated in the US-led trade war and uncertainty mounted over South Africa’s fiscal direction. Concerns around the coalition government’s ability to pass the national budget added to investor anxiety. Some recovery was seen toward the end of the month, with the rand closing at ZAR18.61/USD, supported by a slightly softer dollar and improved risk sentiment.

Looking ahead, we maintain a cautious stance amid elevated global market volatility and persistent uncertainty surrounding South Africa’s fiscal trajectory. Key areas of focus include global interest rate paths, inflation dynamics, and geopolitical developments, all of which will shape risk sentiment and capital flows. Locally, the upcoming budget presentation and the South African Reserve Bank’s May MPC meeting are expected to be pivotal in guiding market direction. We continue to adopt a holistic investment approach, grounded in macroeconomic fundamentals and responsive to shifting policy signals.