Our weekly podcast by Kevin Lings

Please note that our weekly podcast is taking a short break this week, but we'll be back soon with your regular updates.

The focus areas during the week included

• The S&P 500 ended down 0.3%, driven partly by some hawkish comments by US Federal Reserve (Fed) officials that seemed to dampen investor optimism about the pace of further interest rate cuts. This change in sentiment was aggravated by the risk of a US government shutdown and sharply higher tariffs on branded pharmaceutical drugs. In contrast, US economic forecasts were revised a little higher in the week while weekly jobless claims fell appreciably. Year-to-date the S&P 500 is still up a respectable 13%, despite widespread concerns about valuations.

• US bond yields rose modestly, with the yield on the 10-year ending at 4.2%, up from 4.14% at the end of the previous week and from a recent low of 4.01% earlier this month.

• More hawkish comments by some Fed officials also contributed to the dollar gaining 0.6% against the euro, while the emerging market currency index lost 0.6% against the US dollar. The rand's performance was a little better, losing only 0.2% against the stronger dollar. In the month to date, the rand is the second best performing emerging market currency against the dollar, with a gain of 1.7%. The Columbian peso was up 2.9%.

• On Tuesday, Fed Chair Jerome Powell noted that the economy was in a 'challenging situation' due to near-term upside inflation risks and downside risks to the labour market. He also acknowledged that “equity prices are fairly highly valued”. Several other Fed officials, including St. Louis Fed President Alberto Musalem and Atlanta Fed President Raphael Bostic, cautioned against further monetary policy easing, expressing concerns about persistently high inflation. In contrast, Fed Governor Michelle Bowman warned that the Fed risks falling behind the curve and argued in favour of more decisive rate cuts.

• The US Federal government risks a forced 'shutdown' on 1 October if Congress fails to pass a stopgap funding measure, called a continuing resolution, or fails to sign the necessary appropriations bills to keep federal agencies funded beyond the current fiscal year, which ends on 30 September. The latest budget dispute relates, primarily, to the Trump administration's withdrawal of some medical and other social benefits. Last week the Republican Party (in the House) proposed a short-term stopgap measure (continuing resolution) to fund the government to 21 November, giving Congress more time to resolve the dispute. However, the US Senate rejected the proposal. On Thursday, President Trump (at the insistence of the Republican Party) backed out of a scheduled meeting with the Democratic leadership to try to resolve the problem. This means the focus has shifted to key meetings scheduled on Monday to try to find a resolution. US government “shutdowns” have been a regular occurrence in recent history but have, typically, not lasted very long. Since 1976 there have been 20 government shutdowns lasting for a day or more. The most recent one, in December 2018. lasted 35 days, which set the record as the longest shutdown in US history. During US government shutdowns, treasury interest payments, social security benefits and many core government departments (eg Defence) continue uninterrupted, although thousands of federal employees do not get paid. However, the unpaid employees generally receive back pay once funding is restored. From an economic perspective, the longer the shutdown the bigger the impact, but at this stage the economic damage is likely be minimal in the context of a $30 trillion economy. From a market perspective, the uncertainty that a potential government shutdown introduces can cause a short-term uptick in volatility, especially after a long stretch of strong market gains. But as history shows, government shutdowns have had little lasting impact on equity performance.

• Late last week President Trump signed a proclamation that imposes a $100 000 fee for H1-B visas. The administration clarified at the weekend that this would apply to the application process for this work authorisation. The US H1-B visa program allows 65 000 work visas for highly-skilled degree holders annually. Another 20 000 visas are available for master's degree holders. These visas are used heavily by technology companies, with computer-related occupations accounting for around 65% of approvals in 2023. It will be interesting to see if the increase in the fee from $1 000 to $100 000 will be successfully challenged in the courts, but the move adds to the push from the Trump administration to substantially tighten US immigration policy. The effect of this adjustment is already showing up in aggregate labour-market statistics, with job gains in sectors reliant on immigration having slowed significantly this year. If sustained, this could risk weighing on US potential growth rates and is likely to add to some inflation pressures in the most affected sectors through higher wages.

• In the final estimate of US GDP growth for Q2 2025, the Bureau of Economic Analysis revised the growth rate meaningfully higher from 3.3% to 3.8%. The upward revision to GDP was mainly due to increased consumer spending, which was revised up from 1.7% to 2.5%. Understandably, the revised GDP data quickly prompted a broad-based increase in US GDP forecasts for 2025.

• US weekly jobless claims surprised to the downside last week, falling to 218 000, well below market expectations of 233 000 new claims. The latest decline in unemployment insurance claims suggests that while companies are not adding a significant number of new employees, they are also not actively reducing employment.

• US core PCE inflation rose by 0.2% m/m in August, in line with market expectations. On a year-on-year basis, core PCE inflation was 2.9%, also in line with expectations. (Headline PCE inflation was measured at 2.7% y/y in August, with goods inflation at 0.9% y/y and services inflation rising to 3.6% y/y, hurt by elevated shelter inflation of 3.9% y/y.) US core PCE inflation has been above 2.5% in each of the past 53 months and is expected to rise above 3% over the next few months, due to higher US import tariffs.

• On Tuesday, S&P Global reported that its US Manufacturing Purchasing Managers' Index (PMI) reading for September totalled 52, which is down marginally from 53 in August, but fractionally above market expectations for a reading of 51.9. The services PMI also declined modestly, registering a reading of 53.9 in September from 54.5 in August. This was in line with expectations. Encouragingly, in both the manufacturing and services sectors, businesses' expectations for output over the next 12 months improved to the highest level in four months. According to Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, “further robust growth of output in September rounds off the best quarter so far this year for US businesses. The PMI survey data are consistent with the economy expanding at a 2.2% annualised rate in the third quarter.”

• According to the US Census Bureau, sales of new single-family homes surged unexpectedly in August 2025 to an annualised 800 000. This is an increase of 20.5% m/m, taking new home sales to their highest level since January 2022. The market expected home sales to decline by 2.1% m/m. In contrast, the US National Association of Realtors reported that sales of existing homes were little changed in August 2025 at a seasonally-adjusted and annualised four million units. This represents a modest monthly decline of 0.2% m/m, although the outcome was better than market expectations for a moderation to 3.96 million existing home sales. The median sales price for existing homes rose by 2% y/y in August to $422 600, which is the 26th consecutive month of year-on-year price increases.

• In Q3 2025, South African consumer confidence fell from -10 to -13. This is despite a recent cut in interest rates, inflation surprising convincingly to the downside as well as retail sales performing better than expected in the past nine months. Consumer confidence has been below zero in each of the past 25 quarters, highlighting the household sector's concerns about a lack of service delivery, a weak labour market and high levels of crime.

• In August 2025, South African PPI inflation rose by 0.3% m/m and by 2.1% y/y. The annual rate of increase in PPI inflation is up from 1.5% y/y in July and above market expectations for an increase to 1.8%. While 2.1% is still relatively low, as recently as May 2025 PPI inflation was a mere 0.1% m/m. In August there was further evidence of some upward pressure on the cost of food, with prices at the manufacturing level rising by 0.5% m/m. At this stage we are assuming that the upward drift in food inflation will be relatively modest, especially as the recent outbreak of foot and mouth disease has been contained.

• In recent months, SA's National Treasury has researched the possibility of introducing a fiscal anchor. Numerous countries have adopted fiscal rules and frameworks over the past 15 years that aim to give clarity and predictability to government spending. But these rules have not been as effective in keeping deficits and debt within their intended limits. According to a report by the IMF released on Thursday, about 40% of advanced economies and more than 60% of emerging markets exceed their own fiscal limits. The IMF argues that robust correction mechanisms, with pre-defined timelines and measures, could better guide the return to rule limits and reduce sovereign spreads. In addition, supportive fiscal institutions, such as independent fiscal councils, can reinforce compliance.

• The HCOB Eurozone Composite PMI Output Index rose to a 16-month high of 51.2 in September, up marginally from 51 in August. Services activity grew at the fastest pace this year, driving the overall increase, while manufacturing output expanded at a slower pace. Companies were optimistic that output will grow in the coming year, but weaker confidence in manufacturing caused overall business confidence to dip to a four-month low.

• Sweden's Riksbank lowered its policy interest rate by 25 bps to 1.75% to support economic growth. Most analysts expected the Riksbank would leave interest rates unchanged. This is the central bank's third rate cut this year, taking the level of interest rates to their lowest level since 2022. It seems likely that Sweden is now at the bottom of its interest rate cutting cycle. Meanwhile, the Swiss National Bank (SNB) kept its key interest rate at 0%, in line with market expectation. The bank highlighted that inflation, which was last measured at 0.2%, has moved back into its 0% to 2% target range, easing concerns over deflation.

• The Tokyo area consumer price index (a leading indicator of nationwide trends in inflation) rose by 2.5% y/y in September, unchanged from the August reading but below market expectation for an increase to 2.8%. The lower-than-expected inflation outcome was helped by the impact of temporary subsidies and led to a (modest) softening of market expectations about the risk of a near-term increase in interest rates. Minutes of the Bank of Japan's July meeting reaffirmed the bank's stance that it would raise rates if its forecasts for the economy and prices were met.

• The Organization for Economic Co-operation and Development (OECD) has revised its global growth forecast for 2025 upwards, from 2.9% to 3.2%, reflecting a stronger-than-expected economic performance in the first half of the year. It said key drivers include fiscal stimulus in China, front-loaded industrial production ahead of anticipated tariff hikes, and robust AI-related investment in the US. Together, these factors have helped sustain global economic activity at levels only slightly below historical averages. US growth expectations were also revised higher, from 1.6% to 1.8% for 2025. However, the OECD cautions that the full impact of tariff increases has yet to materialise. Many of these tariffs are being phased in gradually, and companies have so far absorbed some of the added costs. At this stage it appears likely that US economic growth will remain below potential in the second half of the year, before re-accelerating in 2026, as tax cuts, deregulation, and lower interest rates begin to take effect. Inflation is still expected to move higher over the next 3-6 months, but the increase is expected to be manageable.