Markets remain nervous on Isreal-Iran conflict
Smoke rises above buildings in Tehran following an Israeli strike on the sixth day of fighting between Iran and Israel. The nervous and volatile environment due to the President Trump's s chaotic tariff policies, the Middle East conflicts and other uncertainties in global markets, like the oil price, may led to unfounded signals that any cuts in the next several months could points towards the Fed is worried about a downturn in the economy, rather than lowering rates in line with lower inflation that falls within the Fed's set target.
Image: AFP
The US Federal Reserve keeps interest rates unchanged.
As was expected, the US Federal Reserve's FOMC during its meeting of June 17–18, 2025 has maintained the federal funds rate at 4.25%–4.50%.
The FOMC, however, has indicated they will lower its bank rate by another two twenty-five‑basis‑point rate cuts later in 2025, as was released in their report last Wednesday.
The abstaining of lowering rates can also be seen as the upside risk over escalating clashes between Israel and Iran.
This is the fourth meeting in a row that the FOMC kept its short-term rate unchanged.
The nervous and volatile environment due to the President Trump's s chaotic tariff policies, the Middle East conflicts and other uncertainties in global markets, like the oil price, may led to unfounded signals that any cuts in the next several months could points towards the Fed is worried about a downturn in the economy, rather than lowering rates in line with lower inflation that falls within the Fed's set target.
'We want interest rates to come down because inflation pressures are receding… not because the economy is rolling over and in need of Fed stimulus,' said Greg McBride, chief financial analyst at Bankrate.
The interest rate decision led to US Stocks contracting last week.
The Dow Jones Industrial Average traded down last week by 0.7%, losing 1.7% since the first attack of Israelis on Iran the previous Friday.
The S&P500 lost last week 1.3% and the Nasdaq Composite, weighed down by tech shares, traded lower by 1.1%.
The JSE and the rand follow the global trend.
The JSE and the Rand continued to follow global financial markets last week.
This despite the news that South Africa's annual inflation rate for May was 2.8%.
This is the same as the annual rate recorded for April 2025 and the third consecutive month where the annual increase in the CPI came in lower than the 'new' proposed target of 3.0%.
This news did however prevent equity prices, and the Rand did not lose a great amount last week. The ALSI ended the week by a mere 0.6% and the Rand/$ exchange rate closed Friday only fifty-two cents weaker at R18.00/$.
The gold price lost $63 per ounce last week, closing Friday, on $3 369. The prices for platinum increased last week by $60 to $1 268.
Prospects for fuel prices in July are not good.
The Brent oil price closed Friday at $76.64 per barrel. It increased $2.47/per barrel last week. Given the weaker rand by Thursday last week, the petrol price was under-recovered by thirty-five cents per liter and that for diesel under-recovered by fifty-six cents per liter.
It is expected that the prices for these two fuel commodities to increase more during the rest of the month.
Prospects for this coming week
The US Fed chairperson Gerome Powel testimony in front of the US senate on Wednesday will be of importance this coming week. Investors await the release of the final estimate of the US GDP economic growth rate on Thursday.
It is expected that the world's biggest economy has grown by 2.4% during Q1 2025. This is 0.2% lower than the 2.6% during Q4 2024.
The announcement on Friday of the US private consumption and spending figures during May 2025 will also be of note.
STATSSA will announce South Africa's annual producer inflation rate for May on Thursday.
It is expected that the annual increase in the CPI during May 2025 was 0.8% and much higher than the annual rate of 0.5% in April 2025.
The FNB/BER Consumer Confidence Index for South Africa for Q2 2025 will be announced also on Thursday. Consumer confidence contracted to -20 in the first quarter of 2025.
This was the lowest value since Q2 2023 and was down from -6 in the previous period. It is expected that the index will improve to -10 during Q2, still indicating that consumers feel negative about the current economic and welfare situation they are in.
Chris Harmse is the consulting economist of Sequoia Capital Management and a senior lecturer at Stadio Higher Education.
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