Canadians are usually pretty chilled, but Trump’s tariffs have got them fired up. We’re clearly past neighbourly pleasantries, eh, and markets aren’t happy about it. Alarm bells are also ringing for the US economy, with missed car payments at their highest level in 30 years, while Ray Dalio makes debt doomsday predictions. The long-awaited budget speech didn’t have SA consumers and businesses smiling either.
Canadian brinkmanship, eh!
World leaders facing tariffs from President Trump’s administration are watching Canada to see what happens when you push back. Bloomberg reports that Canadian officials have responded aggressively to President Trump’s trade war. Ontario Premier Doug Ford imposed a 25% charge on electricity exports to the US and threatened to shut it all off to send a message to the White House after President Trump said he’ll double tariffs on Canadian steel and aluminium to 50%. Incoming Prime Minister Mark Carney also called the US “a country we can no longer trust”. The brinkmanship seemed to pay off as both sides had pulled back. However, Carney plans to keep tariffs on until the US commits to “free and fair trade.”
US assets getting Trumped
With investors unnerved by Trump’s whipsawing tariff policy, US stocks sank at the start of the week. The slide from the S&P 500 (VOO-NASQ) wiped out all its gains since Trump was elected and the Nasdaq 100 sank, with the tech-heavy gauge on the brink of a technical correction (a 10-20% decline). The US dollar also saw its longest losing streak since September.
US consumer pain
In an ominous sign of consumer health in the US, Bloomberg reported that American car owners are missing their monthly payments at the highest rate in more than 30 years.
Low-volatility stocks have room to run
Low-volatility stocks have more room to run, says Bloomberg, driven by uncertainty about US tariff policy and its effect on the economy. An iShares MSCI min-volatility ETF (ACWI-NASQ) is outperforming the S&P 500 (VOO-NASQ) by the most since 2019, which is a notable turnaround after trailing the broader market over the past two years.
Emergency landing
Airline results show that US consumers are cutting back on travel spending. The category has been super-resilient as people prioritised experiences over possessions after the pandemic. However, Delta (DAL-NASQ) fell -7.25% after it cut its Q1 guidance significantly due a major dip in demand. Southwest (LUV-NASQ) is also seeing softness in “bookings and demand” but they ditched their long-held “free baggage” policy to prop up its bottom line.
Last ECB cut?
The ECB cut its deposit rate by a quarter point to 2.5%, as expected. Officials described their monetary policy stance as becoming “meaningfully less restrictive.”. The ECB indicated that its cutting phase may be nearing its end as inflation cools and the economy digests seismic shifts in geopolitics.
US debt warning
Bridgewater founder Ray Dalio has warned that a significant supply-demand problem regarding U.S. debt could have a major disruptive impact on the global economy. ”[The U.S. has] to sell a quantity of debt that the world is not going to want to buy.” He said this was imminent and of “paramount importance.” The U.S. deficit needs to go from a projected level of 7.2% of GDP to about 3%, Dalio said. “You are going to see shocking developments in terms of how that’s going to be dealt with,” he added. Asked by CNBC whether the U.S. debt problem could lead to a period of austerity, Dalio said the issue could result in debt restructuring, the U.S. applying pressure on other countries to buy the debt, or even cutting off payments to some creditor countries.
Better late than never
After a lengthy delay, SA’s finance minister delivered his budget speech. Spending cuts and tax adjustments will impact various groups, including consumers who will face a 0.5% VAT increase on 1 May and another 0.5% bump on 1 April 2026. The decision aims to raise an additional R42.5 billion over the next two financial years. Individual taxpayers who won’t see personal income-tax brackets adjusted for inflation, and smokers and drinkers will face higher taxes. Not great news for consumer discretionary stocks. However, over the next three years, the treasury will allocate R1.03 trillion to public infrastructure, including roads, energy, water, and sanitation, with a focus on improving institutional capability, financial sustainability, and operational performance, which could boost construction sector stocks.
Microsoft invests $298m in SA
Microsoft (MSFT-NASQ) will invest $298 million on artificial intelligence (AI) and data centre infrastructure in South Africa. The announcement follows a pledge to provide one million South Africans with AI and cyber security training opportunities by 2026. The pledge builds onto previous investments totalling $1 billion on data centres in the country. The company will also fund 50,000 people to follow further courses and certification exams in cloud architecture, AI and cybersecurity.
Record profits for Sanlam
Sanlam (SLM-JSE) announced a +54% increase in profits to R22.2 billion [$1.21bn], the highest on record, as the company’s growth strategy pays off. Sanlam is now turning its focus to growing its reinsurance business, as it looks to take a bigger market share. The insurer is also planning to expand its business in India.
Stock focus: Absa Group Limited
There is a strong recovery taking hold at Absa (ABG-JSE) with the bank’s half-year performance for the second six months in the 2024 financial year indicating a stronger-than-expected rebound. Headlines earnings (+4%) were ahead of company-compiled consensus, and return on equity (ROE) recovered to 15.5% from 14% in the prior six-month period. Capital generation was also strong, There are good signs that the new management team’s execution changes are taking hold. Buy signals are flashing on this stock.
