Global markets have spent much of the past decade shaped by central bank forward guidance, gradual rate adjustments, and flexible inflation targets. That era, however, is rapidly coming to an end. As central bankers prepare for the annual economic symposium in Jackson Hole, Wyoming next week, the global macro conversation has shifted from cyclical rate forecasts to the broader framework of modern monetary policy.
Federal Reserve (Fed) Chair, Kevin Warsh, who took office in May, has made it clear that he intends to use his upcoming keynote to reshape the Fed’s approach, arguing that persistent inflation is a “choice” rather than an unavoidable external condition. Warsh’s emerging framework combines pragmatic management of short-term rates with aggressive quantitative tightening (QT) aimed at steadily reducing the Fed’s multi-trillion-dollar balance sheet.
By signalling to institutional investors that the central bank is “not constrained by market prices,” Warsh is challenging the assumption that rate cuts will automatically follow a slowdown in growth. Instead, policymakers across major economies are increasingly taking a more disciplined approach, forcing credit and fixed-income markets to reset their baseline expectations for interest rates.
THE STICKY SIDE OF INFLATION
This shift comes at a critical time as geopolitical developments push back against the optimism around peace seen earlier in the summer. The standoff between Washington and Tehran over the Strait of Hormuz has entered a more complicated phase. With United States (US) naval enforcement becoming firmer and diplomatic talks producing little progress on maritime access, the geopolitical risk premium has returned to energy markets.
The immediate effect is familiar, with higher transportation costs that could disrupt the disinflation process. Even as US headline inflation provides some short-term relief, central bankers remain aware that supply bottlenecks can take months to work through industrial supply chains. For policymakers, treating inflation as a structural choice means resisting rate cuts until supply-chain volatility has fully worked its way out of domestic pricing behaviour.
THE SOUTH AFRICA OUTLOOK
For South Africa, this week brought an important macroeconomic milestone. Statistics South Africa reported on Wednesday that annual headline Consumer Price Index (CPI) inflation eased to 4.3% in July from June’s two-year high of 5%, coming in below consensus expectations. The decline marked the first slowdown in five months, helped by softer fuel price growth and lower domestic food inflation.
However, beneath the headline improvement, the picture remains more mixed. Core inflation, which excludes volatile food and energy prices, edged higher to 4.2%, its highest level since mid-2024. This underlying stickiness supports the South African Reserve Bank’s (SARB’s) decision to raise the repo rate to 7%. SARB Governor, Lesetja Kganyago’s strategy of anchoring inflation expectations ahead of potential pipeline pressures appears to be helping. The rand has remained resilient, but with Brent crude rising back toward $93/barrel on renewed Gulf shipping risks, the SARB is likely to maintain a cautious stance at its upcoming September Monetary Policy Committee meeting.
MARKETS IN A NUTSHELL
THE WEEK’S KEY THEMES:
• Jackson Hole approaches as Fed Chair Warsh signals a structural overhaul of the Fed’s framework
• Brent crude rallies for four consecutive sessions toward $93/barrel on the Hormuz standoff
• South African headline inflation cools to 4.3%, while core CPI rises to 4.2%
• Rand strengthens toward R16.12/$, supported by high domestic real yields
BONDS
The US bond market saw some significant moves over the past week. A synchronised sell-off in long-dated debt on Tuesday pushed the 30-year Treasury yield to a 19-year high of around 5.34%, while the 10-year reached a 20-month high near 4.75%. Renewed Iran-related energy risks, elevated term premia from heavy Treasury issuance, wider fiscal deficits and increased Treasury supply all contributed to the move. Yields subsequently eased, with the 10-year falling back toward 4.64% and the 30-year slipping below 5.20% by Wednesday, helped by the Treasury stepping up its liquidity-support buyback operations to support the long end. The two-year, which is more closely tied to monetary policy, held around 4.17%.
The European Central Bank (ECB) remains the clearest hawk among developed-market central banks. With the deposit rate at 2.25% since June, money markets are now pricing in roughly a 90% chance of a hike at the September meeting and expect the deposit rate to reach around 2.75% by early 2027, implying two further increases. The ECB is tightening policy as the economy slows to prevent energy-driven inflation from becoming embedded in wages and services. This was reflected in the bond market, with the 10-year German bund yield rising above 3.25% this week, its highest level since 2011.
South African government bonds sold off modestly over the week, by around five basis points across the curve, with the long end coming under the most pressure and the curve steepening as a result. The 10-year yield traded between roughly 8.58% and 8.72%, driven by a mix of global crosscurrents, oil price volatility and local inflation expectations. Record gold prices provided some offsetting support.
EQUITIES
Wall Street traded cautiously this week, easing slightly from recent highs as investors avoided taking strong directional positions ahead of next week’s central bank symposium. Renewed concerns around oil, inflation and interest rates have weighed on sentiment, particularly across technology and other large-cap growth stocks. Markets remain sensitive to changes in the inflation and rate outlook, while cyclical and consumer stocks have come under pressure from higher short-term borrowing costs.
European equities were subdued, with the STOXX 50 and STOXX 600 hovering around flat levels. Rising energy prices and renewed inflation concerns have weighed on sentiment, while expectations of higher-for-longer interest rates have created a less supportive backdrop. The FTSE 100 has been relatively resilient, supported by its defensive and commodity exposure. Gold miners have benefitted from higher bullion prices, although elevated inflation and borrowing costs continue to weigh on broader sentiment.
The JSE All Share Index was broadly flat for the week, with elevated gold prices continuing to support precious-metal shares, while domestic retailers and banks found some support from the stronger local currency.
COMMODITIES
Brent crude recorded a four-session winning streak, rising toward $93/barrel. The move has been driven mainly by renewed geopolitical risks and continued uncertainty around oil flows through the Strait of Hormuz, following the expiry of the 60-day US-Iran memorandum of understanding without a broader agreement. This was compounded by attacks on energy infrastructure and tankers linked to the Russia-Ukraine conflict. With Hormuz traffic still well below pre-war levels and diplomatic efforts with Iran stalled, the continued rise in crude prices suggests supply risks are becoming more persistent rather than simply reflecting a short-term geopolitical premium.
Gold prices consolidated around $4,400/ounce, briefly breaking above $4,500 this week to reach their highest level since early June. The move was triggered by the US Treasury’s 19 August announcement that it would double purchases of longer-dated government bonds, pushing Treasury yields and the dollar lower. Some profit-taking has followed, but the broader backdrop remains supportive, with safe-haven demand from geopolitical and fiscal uncertainty complemented by continued central bank buying.
CURRENCIES
The US Dollar Index fell to around 98.7 from approximately 99.5, its lowest level since late May. The move followed a series of softer US data, strengthening expectations that the Fed will hold rates in September and weighing on the dollar against its major counterparts. The weakness was then reinforced by the US Treasury’s announcement that it would expand its liquidity-support buyback operations, which pushed bond yields lower and removed another source of support for the dollar.
The euro remained around $1.168/€, struggling to build meaningful momentum against the dollar amid weak eurozone manufacturing activity and elevated regional energy costs. Sterling rose to around $1.359/£, remaining close to a three-month high. The move was mainly driven by the weaker dollar, while the latest United Kingdom inflation and labour market data reduced some of sterling’s domestic support by lowering expectations of another rate hike.
The South African rand had a constructive week, strengthening to R16.12/$, its strongest level in several weeks. The currency is benefitting from higher gold prices and the softer domestic inflation print, which supports confidence in the SARB’s 7% repo rate and gives investors one of the highest real yields among emerging-market peers.
*Please note that all information is at the time of writing.
Key indicators:
USD/ZAR: 16.12
EUR/ZAR: 18.82
GBP/ZAR: 21.99
BRENT CRUDE: $93.46
GOLD: $4,518
Written by Citadel Equity Analyst, Liam Roubach.
Sources: Bloomberg, Daily Investor, Riviera Wealth Management, Statistics South Africa, Trading South Africa, Trading Economics and US Energy Information Administration.
