Macro Pulse Episode 28

Hello and welcome to Macro Pulse. We are off to a good start in 2026. Even though we had some volatility towards the end of January and into the beginning of February, we see that some of the themes that played out in 2025 is carrying over into 2026. Most notably, metal prices were up in January. We saw that the SA resources continue to lead the equity market and emerging market, and ex US equity markets outperforms US equity markets. We also saw that the dollar continues to weaken and that the rand continues to strengthen.

We also had some new developments in the market. Firstly we saw that the SA Retail index equity retail index were up over the month of January. A sign that we could see some broadening out of performance over 2026. Similarly, in the US we see a broadening of equity performance. Last year it was really the tech stocks, the large tech stocks, the Nasdaq that performed really well. And this year the Nasdaq, the Magnificent Seven is lagging. In fact, the Russell 2000 which is the small Caps index is doing well. And the S&P 500 equally weighted is outperforming the S&P 500 market cap weighted showing that there’s a broadening of returns. We believe this broadening out of equity market returns can continue over 2026 as growth is stabilizing, and investors are looking for value in an environment of price volatility and extended valuations.

We saw that also recently playing out in the gold and metals market, where we had a very steep rally in the beginning of the year. Market became extended. We saw some speculative behavior and strong retail inflows into the metals markets. And we had a drawdown of four silver, almost 30%, as the market flush out some of this speculative behavior. We believe that metal prices will now stabilize and will continue to be driven by the demand factors or the new demand sectors of reserve managers, as well as investors looking for alternative safe havens.

But what caused the catalyst for metal markets to fall at the end of last month? It came and it coincided with the nomination by Trump of the new Fed Chair Kevin Warsh. Now Kevin is seen by the market as potentially more hawkish and less unconventional than some of the other alternatives, which was on Trump’s, potential list. Therefore, the market had to price out some of the debasement fears, the dollar debasement fears. It had to price out the fear of unchecked inflation, and also the fear that there could be a loss of Fed independence.
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But what do we know about Kevin Warsh? He was a Fed governor between 2006 and 2011, and he was on the shortlist to become a Fed Chair in 2017 during Trump’s first term. He therefore did spend some time at the Fed during the GFC. At that point, he was very critical of the use of QE and has dissented a couple of times, in the use of the Fed’s balance sheet in terms of his preferences. We know that for now, and from recent comments, that is in favor of interest rate cuts. He believes that, due to productivity gains, that inflation will fall. He remains critical of a large Fed balance sheet. He believes that the Fed should remain independent and that it should focus on its core mandate of price stability and maximum employment. He also believes that less is more when it comes to Fed communication and forward guidance.

So we believe these first priority when you say there’s a new Fed Chair, would be to cut rates to look at reducing the balance sheet, as well as also easing financial regulation. What we don’t know, where there are some uncertainties is what will the emergency toolkit look like if he’s opposed to QE. What will that new toolkit look like in a time of emergency? If Kevin Warsh is accepted as the new Fed Chair, his first meeting will be in June, meaning that Powell will have two meetings left. Now, the Fed did keep rates on hold at the last meeting and we believe given some of the strong data points that’s coming through more recently we had strong manufacturing PMIs and ISM names coming through strong factory goods orders and capital goods orders. It means that Powell may keep rates on hold for those two meetings, with the next cut potentially coming in June.

Turning to South Africa. We had the SARB meeting and despite the fact that the rand has appreciated that they have reduced the inflation forecast for this year, that the fuel prices are falling and that weak growth continues, the SARB decided to keep rates on hold. We believe there’s still scope for the SARB to cut rates to 6% and potentially below 6%, but this will be a gradual process. One in which the SARB will remain cautious.

We also received news that President Trump and Congress have signed an extension to the AGOA agreement, an agreement between the US and African nations, to extend that program for another year. While this is good news, the tariff rate onset effect remains 30% and just this week, the US and India signed a deal in which the Indian tariff rate was reduced from 50% to 18%. This is a sign that for South Africa, there is still some scope to negotiate a lower tariff rate with the US. Thank you for watching. That’s all for this week.