A fresh round of tariffs from the Trump administration hit the brakes on automakers and sent tech stocks skidding, moving the global trade war to DEFCON 2. Unsurprisingly, traders and investors lost their risk appetite. US consumer confidence is also running on fumes, with Lululemon’s stretch wearing thin. Meanwhile, China is trumping all other emerging markets, despite positive signs for SA and the rand.
Tariffs hit the brakes on auto stocks
President Trump sent the global automotive sector into a skid after signing an order to implement a 25% tariff on auto imports, effective April 2. His aim? To bring more manufacturing jobs to the US. The tariffs will apply to all cars not made in the US, and the administration projects they will result in $100 billion of new annual revenue to the US. The move sent shares in global automakers tumbling, including US auto-parts suppliers and manufacturers like General Motors Co. (GM-NASQ) and Ford Motor Co. (F-NASQ), as the tariffs are set to raise prices for US consumers. Analysts estimate that new tariffs could increase new-car prices by thousands of dollars. Trump said the tariffs are “permanent” and that he was not interested in negotiating any exceptions. The FT reports that the EU is considering hitting US services exports, including Big Tech’s operations, in retaliation as the zero-sum game moves to DEFCON 2.
Tech tumbles on tariffs
A selloff in mega-cap tech stocks drove prices lower, with concerns about the economic impacts of a trade war sending investors to safe havens, like cash, and left traders unwilling to take on too much risk. Following their biggest winning run since November, the Magnificent Seven slumped, with Nvidia (NVDA-NASQ) and Tesla (TSLA-NASQ) dropping at least 5.5%. The tech-heavy Nasdaq 100 slipped around 2% and the S&P 500 (VOO-NASQ) down more than 1%.
China piles on AI margin pressure
As Chinese companies release more open-source AI models, leading US tech companies are coming under pressure from potential margin compression and valuation adjustments. Bloomberg expects the trend to continue, with Chinese companies likely to release more open-source AI models in other fields, potentially disrupting the global AI market and forcing Western companies to re-evaluate their business models and strategies.
US consumer confidence tumbles
In March, US consumer confidence fell to the lowest level in four years as concerns mounted that Trump-era tariffs would lead to higher prices and dim the country’s economic outlook. The Conference Board’s gauge of confidence decreased 7.2 points to 92.9 – lower than the median estimate in a Bloomberg survey of economists of 94. A measure of expectations for the next six months dropped nearly 10 points to 65.2, the lowest in 12 years. The deteriorating consumer outlook indicates that any relief for stocks could be temporary, unless supported by some bigger stimulus, which leaves the market vulnerable to another selloff.
Namastop spending
In a clear sign of weak US consumer spending, Lululemon Athletica Inc. (LULU-NASQ) shares dropped after the yoga wear brand delivered a disappointing outlook for the year and raised concerns about consumer health in the US. CEO Calvin McDonald said that US shoppers are keeping their wallets tight and visiting stores less often as geopolitical issues and higher inflation curb spending. Lululemon expects sales to be in the range of $11.15-11.3 billion, which is lower than Wall Street analysts anticipated. The outlook for first-quarter revenue also missed expectations. The forecast “marks a material slowdown from recent quarters,” wrote Bloomberg Intelligence analyst Poonam Goyal.
China shines
The largest emerging markets ETF, which excludes China, saw record withdrawals in a reversal from the 24-straight months of inflows that fuelled a 745% surge in the fund’s assets. Bloomberg reported that total assets held in the iShares MSCI Emerging Markets ex-China ETF (EEM-NASQ) dropped 17% from a peak in September. In contrast, the MSCI China Index (MCHI-NASQ) returned 38% over the past 12 months, convincingly beating the 1.7% gain in the MSCI ex-China index and the 9% increase in the broad EM benchmark.
Glencore cuts coal output
Glencore (GLENL-TRQX) said it’s cutting planned coal production as the world’s biggest shipper of the fossil fuel looks to halt a prolonged price collapse. According to a Bloomberg report, the giant commodity trader will produce between 5-10 million tons less coal than previously expected at its Cerrejon mine in Colombia.
Foreign investors dump SA stocks
Foreign investors sold off South African equities at the fastest pace in more than a year in Q4 2024, as they piled into the nation’s bonds, leading to smaller portfolio inflows. According to the latest South African Reserve Bank Quarterly Bulletin, portfolio inflows fell 26% to R33.4 billion in the quarter, compared with the prior three months.
Rand shows tariff resilience
The rand has shown resilience in the face of US tariffs, largely due to the Reserve Bank’s pause in the interest rate cutting cycle, improved terms-of-trade and attractive valuations. However, South Africa’s trade surplus will likely be targeted by US tariffs, with smaller categories such as autos more likely to be hit than precious metals.
Pepkor buying growth
In its ongoing hunt for growth, Pepkor (PPH-JSE) plans to buy apparel and homeware businesses from Retailability. The move is in line with Pepkor’s strategy to build scale and gain market share in the adult-wear segment. The transaction is less than 2% of Pepkor’s market cap and will be funded with cash. Moreover, the increased store base across both apparel and home product lines will improve financial services cross-selling, which is already growing fast.
Sector focus: Construction
The World Bank has partnered with the South African government to support a $3 billion City Rescue Plan. A $1 billion loan from the World Bank, coupled with $2 billion of government funding will finance grants for cities including Johannesburg, Durban and Cape Town that meet targets in providing water, sanitation, electricity and solid-waste processing under a new government program. The announcement comes after President Ramaphosa revealed a strategy that aims to inject $88 billion in public sector funds into infrastructure upgrades by 2030, with private investors contributing $177 billion.
