Market Commentary

The South African Reserve Bank (SARB) raised its repo rate by 25 basis points to 7% on Thursday, noting its first increase since 2023. The bank cited rising inflation risks linked to the Middle East conflict and warned that overlapping shocks could trigger second‑round effects, justifying a pre‑emptive monetary response. Headline inflation climbed to 4% in April 2026, touching the top of the target range.

This prompted the SARB to lift its 2026 inflation forecast to 4.40% (up from 3.70%), while outlining three alternative scenarios that signal two to three further hikes if geopolitical tensions persist. Financial markets reacted cautiously to the news; the rand traded at 16.30 against the dollar and the 10‑year bond yield sat at approximately 8.40%, as investors balanced domestic tightening against a firm dollar.

In the US, economic data continued to point to a hawkish Federal Reserve. The first-quarter GDP expanded at an annualised 1.60%, an upward revision from the 0.50% seen in 4Q25, but below the advance estimate of 2% due to downward revisions in investment and consumer spending. Despite this, Wall Street equity markets booked gains after reports emerged that Washington and Tehran had agreed a 60‑day memorandum to extend their ceasefire and progressively restore Persian Gulf energy exports.

The ceasefire news caused the dollar index to slip to 99 from intraday highs near 99.5, while bond yields eased as energy prices pared earlier gains. Wall Street stocks experienced a volatile session but ultimately ended higher, led by AI software and infrastructure names. Microsoft, Oracle and Palantir rallied roughly 3%-4%, while Snowflake surged about 30% on a strong outlook. However, this software strength was not broad-based; Salesforce fell and financial heavyweights Visa and BlackRock both lost momentum, dropping close to 2%. Consequently, the S&P 500 rose 0.60% and the Nasdaq 100 gained about 0.77% to hit fresh records, while the Dow Jones remained flat.

European markets closed lower following a volatile session similarly dominated by shifting Middle East headlines. The STOXX Europe 600 slipped 0.40% to 625.83, and the Euro STOXX 50 fell 0.30% to 6 055. Financials and industrials lagged the broader market, with Santander, Allianz, AXA, Siemens, and Schneider declining between 1% and 2%. Conversely, defence and AI‑infrastructure names outperformed. Rheinmetall jumped about 5% after Ukraine ratified a €105 billion EU loan package, while semiconductor players ASML and Infineon gained 1% and 4.50%, respectively.

In London, the FTSE 100 snapped an eight-day winning streak, closing down 0.70%. Widespread weakness among healthcare, utilities, and banks – including HSBC, Lloyds, Barclays, AstraZeneca, and GSK – outweighed modest gains in oil majors and defence contractors like Rolls‑Royce, BAE Systems, and Babcock. Utilities were particularly weak after SSE updated the market that it is unlikely to meet its 2030 renewable target, dragging National Grid and Severn Trent down by more than 3%.

Asian indices broadly mirrored the cautious global sentiment. The Hang Seng led the declines, dropping 1.33%, while Japan's Nikkei fell 0.47%. In contrast, mainland Chinese equities bucked the trend, with the Shanghai Composite finishing marginally higher by 0.06%.

In the commodities space, safe-haven assets found favour as precious metals posted solid gains; gold climbed 1.16% and silver rose 1.62%. Meanwhile, Brent crude oil settled slightly lower, down 0.37% on the day.