While South Africa looks east to bolster trade with China in response to looming US tariffs, the UK is stepping in to help address the country’s infrastructure challenges, which are a significant constraint to economic growth at present.
US investors should also buckle down and prepare to ride out the bull run, with the stock market set for short-term gains before inflation, falling job data, and other seasonal factors gas out the run.
Short US bull run
Citadel Securities’ Scott Rubner said investors should expect a solid US stock run into the Labour Day holiday (Sept 1 2025) before seasonal factors conspire to deliver a rockier period into winter. Quoting Rubner, a Bloomberg report highlighted factors supporting the short-term strength, including sustained demand from retail dip-buyers, flows into stocks from under-allocated institutional investors, and corporate purchases.
Doubting the data
There are concerns around the quality of America’s jobs data, partly because of falling survey response rates. Monthly non-farm payrolls (NFPs) were overstated by an average of 75,000 in 2024. Research by Peter Berezin, chief global strategist at BCA Research, carried by the Financial Times, also suggests the US labour market is close to the point where any further fall in demand could push up the unemployment rate significantly. Since February, the US economy created 671,000 jobs, two-thirds of which have come from less dynamic sectors, including health, government and education. In June, the Bureau of Labor Statistics’ payroll diffusion index for the private sector fell below 50, signifying that more sectors are shedding jobs than gaining them. That is a rarity outside a recession.
Tariffs fan inflation
The average US tariff rate has risen from 2.3% in January to 13.3% – the highest rate since 1939. The expected impact? A $2 trillion hit to global GDP by the end of 2027. That projection assumes US tariffs settle at around 15%, which is only a modest increase from where we are now. President Trump has now sent letters to more than 150 countries notifying them their tariff rates could be 10-15%. Alcoa Corp. CEO William Oplinger said tariffs on imports from Canada cost it $115 million in Q2. He added that US customers will bear the costs of tariffs on aluminium producers, and that they “are paying significantly higher for aluminium in the United States than anywhere else in the world”. Adding his voice to the chorus, Federal Reserve Bank of New York President John Williams said he expects tariffs to have a bigger impact on inflation in the months ahead. According to a Bloomberg report, Williams said he sees tariffs adding about one percentage point to inflation through the second half of the year and into 2026, and that a weaker dollar will likely “add somewhat to inflationary pressure going forward”.
Cost overruns
BHP Group (BHPL-TRQX) flagged rising costs and delays at its major potash project in Canada, with estimated costs for the first phase increasing from $5.7 billion to between $7-7.4 billion. CEO Mike Henry said: “Commodity demand globally has remained resilient so far in 2025”, citing China’s ongoing ability to grow its overall export base and deliver robust domestic demand despite the dislocation in the property sector.
Eastward bound
As 30% US import tariffs loom from August 1, South Africa is looking east to expand its trade portfolio to create more balance and tackle a growing trade deficit that heavily favours China. China has also called for more supply chain cooperation with South Africa, and expanded collaboration in areas including new energy and the digital economy, according to a statement from the Chinese commerce ministry. China hopes to strengthen communication with South Africa under frameworks, including WTO, G20, and BRICS, to uphold the multilateral trading system. However, Carlos Lopes, a professor at the University of Cape Town’s Nelson Mandela School of Public Governance, told Bloomberg that while the Chinese market was important for South Africa, it was “not a simple one-to-one replacement for the US”. The real threat is the ‘chilling effect’ on US investments in South Africa, particularly in sectors like automotive manufacturing.
A lending hand
After President Ramaphosa estimated that the nation needs R4.8 trillion in public and private infrastructure investment by 2030 to meet its goals, Chancellor of the Exchequer Rachel Reeves unveiled plans for the UK to help boost South African infrastructure through a partnership designed to speed up the delivery of major projects in the country. The UK is offering technical expertise to get a pipeline of projects ready for investment.
Gambler’s ruin
According to John Manyike, head of financial education at Old Mutual, gambling is threatening SA’s economy in the long run as it is shaping consumer behaviour and spending patterns. Quoted in Business Day, Manyike said: “We’re seeing an explosion of gambling in SA”, adding certain food sectors had reported fewer customers as people increasingly gamble away their disposable income as a way to survive. Gambling reportedly makes up about 1% of SA’s GDP and contributes roughly R5 billion to the fiscus.
Sector focus: Iron ore
According to Citigroup Inc. analysts, China-related speculation has driven iron ore’s recent gains, suggesting the rally is speculative and not supported by fundamentals. Iron ore’s gains had been driven by pledges from Chinese officials to combat excessive competition and tackle outdated capacity, as well as deliver additional property-led policy measures. Supporting this view, Rio Tinto Group’s (RIOL-TRQX) Q2 iron ore shipments were down -1% from the same period last year. According to Bloomberg, shipments jumped +13% from Q1, when four major storms impacted ports servicing Western Australian Pilbara mining hub. The company still relies on iron ore for about 80% of its underlying earnings and is seeking to boost production in the Pilbara, while bringing its massive Simfer mine at the Simandou project in Guinea online this year.
