As we come to the end of another tax year, if you want to add to your retirement funds and get a tax break, you’d best get a wriggle on. Make a note to record your odometer reading at month’s end, and of course, the second provisional tax return is due at month’s end too.
Your summary with links, if you’d like to curate your content:
Japan Post-Election Relief Rally and Yen Rebound
(Market relief, yield compression, carry-trade risk)
Emerging Markets: A Broad-Based Flow Revival
(Record inflows, valuation re-rating, diversification away from US concentration)
Norway: Inflation Shock and the Risk of a Rate Hike Outlier
(Why Norway is different, and why it probably does not mean Europe is broken)
Climate, Energy and Policy: US Environmental Policy Rollback and Legal Fallout (Deregulation drive, Supreme Court risk, public-health and investment implications) Featuring Donald Trump and Environmental Protection Agency. China’s Emissions Turning Point and the Renewables Pivot. (CO₂ peak debate, renewables scale, industrial risks)
Currencies and Global Finance: The Dollar Under Pressure and the Future of Reserve Currency Power. (Policy credibility, debt load, geopolitics and multi-currency world risk)Central Banking and Liquidity: The End of the ‘Fed Put’? Liquidity, SOFR and the Warsh/Bessent Agenda. (Quantitative tightening ambition, global plumbing risk, and why markets may not be ready for rehab just yet)
This Week’s Roundup
RSA
USA Markets & Economy
Graph: Nasdaq
Global ex RSA/USA
Last Wednesday dawned with traders braced for another decline in jobs growth. Instead, non-farm payrolls grew by 130,000 in January, better than any month of 2025, while the unemployment rate fell. That’s evidently good news for the US workforce, and for those who’ve been arguing that the global economy is in something of a sweet spot.
No news is ever universally positive, however. Strength like this in the jobs market makes further interest-rate cuts that much harder to justify. Futures pushed back the likely date of the next easing to July from June. That had a direct knock-on effect on bond yields, which rose sharply.
Futures are still pricing in two cuts for the full year, but it’s questionable whether that is a fair bet. The available workforce is smaller than it used to be, thanks to demographics. The ratio of those in employment to the entire population is unimpressive. For all practical purposes, the US appears to be close to full employment.
The potential supply of workers has also been revised down, suggesting that the economy is still running close to capacity. The unwelcome corollary is the risk that any stimulus will be channeled into creating more inflation, still arguably the biggest political issue confronting the US.
The next big data release, taking the payroll’s usual spot on Friday morning, will be January CPI. (update)
Confidence in two cuts this year is beginning to look overdone, despite the president’s clear expectation that Kevin Warsh, his nominee to take over the Federal Reserve chairmanship in May, will deliver at least this much easing. The market is saying that Warsh will come in and cut twice. That’s certainly what he intends to do, but maybe the market won’t be confident with him doing that later in the year.
This is not a dynamic US economy, and inequality is intensifying. There is continuing low wage growth in the lower income bands (with average hourly earnings now up 3.7% year-on-year), while gains flow mostly to those who already own assets:
People know they are falling behind, absolutely and relatively, and it is unlikely that middle-class jobs will ever come back. The immigration crackdown is making things worse, as immigrants are mostly complements, not substitutes for local labour.
This helps explain the “K-shape” divergence between consumer sentiment and the stock market. Normally, they move together. Since the pandemic, the dispersion has been extraordinary, as demonstrated by this chart:
It’s hard to frame the biggest rise in employment in more than a year as anything other than good news. But many in the markets have managed to do it.
Markets are supposed to like political gridlock and dislike elections that give political leaders too much of a free hand. Except in Japan.
The response to the overwhelming election win last week has been a release of tension. The yen is back at ¥153 to the $, having dropped close to ¥160 last month, while 30-year yields are almost 40 basis points below their January high.
That yen rebound has combined with a remarkable stock rally. Japan has now outpaced the rest of the world, even in dollar terms, since the start of 2024. None of this guarantees that Takaichi will fulfil all the hopes placed in her. And there are dangers in Japan’s re-emergence, as demonstrated by the spasm that went through international markets the last time a yen appreciation drove an unwinding of the carry trade.
It’s no accident that emerging markets have stirred back to life just as faith in US exceptionalism has wobbled. But the strength of their rally has exceeded almost all expectations, rivalling the strongest EM rebounds in history. In January, non-resident portfolio flows into EM assets, including equities and debt, climbed to nearly $100 billion. That’s the second-highest in the last two decades, topped only by one month post-COVID reopening in 2021. A year ago, inflows were only $16.2 billion:
Previous surges were driven by a particular asset class or region. This one reflects coordinated inflows across debt and equity, China and the rest of EM (now widely considered separate due to the political issues surrounding Chinese investment):
That doesn’t mean investors are necessarily dumping the US, but it probably means they’re taking 3% to 5% out of the S&P 500 and putting it into emerging markets. Most investors are still overweight in the US stocks but maybe taking some profits off the table. And because EM is coming from such a lower base, that capital is very meaningful and leads to market re-rating.
Emerging market valuations are relatively cheaper than those in US. Historically, that wouldn’t be enough to spark sustained outperformance. But combined with cyclical tailwinds, a weaker dollar, and growing scrutiny of US exceptionalism, the case for investors seeking diversification looks more compelling:
That said, in absolute terms, the developing world is no longer convincingly cheap. Compared to book values, EM shares have only previously been more expensive during the 2007 rally that culminated in the Global Financial Crisis.
Can this exceptional performance continue? It might just happen. Many emerging economies are well into easing cycles, and are benefiting from the trickledown effects of US Big Tech group’s immense capital expenditures. That has driven an increase in earnings optimism.
Norway is famous for its blue parrots (and its soccer commentators). Is it also offering a canary in the coalmine? The country’s January inflation came in sharply ahead of expectation, and also far ahead of the rate of price rises in the rest of Europe:
This has fed into speculation that the Norges Bank, like the Reserve Bank of Australia earlier this month, will be required to move against the trend for declining rates in the developed world and opt for a hike. Norway’s is now expected to do so in March. In both cases, overnight index swaps show that expectations for rate cuts have whittled away steadily over the last few months:
How alarming is this? Norway is a sufficiently unusual economy, with far greater reliance on energy than other European countries and a history of erratic inflation forecasts. It undershot the euro zone’s inflation during the worst of the post-pandemic price spike; it’s not necessarily alarming that it’s overshooting now. As yields fell across the euro zone Tuesday, that’s how the market is interpreting it.
But it’s a reminder that different economies can diverge further as the global Covid shock disappears into the rearview mirror.
South Africa is on track to set up an independent power-transmission company, as confirmed by President Cyril Ramaphosa in his SONA address, countering assertions that the state is revising the plan.
The government is restructuring state-owned power utility Eskom Holdings SOC Ltd. “and establishing a fully independent state-owned transmission entity, as I have said before,” he told lawmakers in his state-of-the-nation speech in Cape Town. “This entity will have ownership and control of transmission assets and be responsible for operating the electricity market.”
In a statement in December, the utility said Electricity Minister Kgosientsho Ramokgopa had approved a “revised unbundling strategy” that would still split Eskom into distribution, generation, renewable energy and transmission units under a single holding company. It would also see ownership of the grid remain with Eskom, rather than being transferred to an independent transmission system operator.
The statement contrasted with earlier plans to separate the company into three stand-alone units, as Ramaphosa proposed in 2019, to create a more competitive electricity market and make it easier to manage the divisions and their debt.
Analysts said the revised strategy may jeopardise further implementation of the multi-billion-dollar Just Energy Transition Partnership, a program backed by European countries to help South Africa reduce its reliance on coal-fired power.
What other ‘promises’ did the president dream up? He pledged to accelerate measures to fire up the economy, draw in investment and make the government more efficient, an undertaking that will provide further impetus to a blistering market rally if implemented. The President’s track record of keeping his promises is not exactly stellar.
The building of new roads, ports, dams and other infrastructure is aparently proceeding apace, government debt is on a clear path toward stabilisation and investor and business confidence is rising, Major new initiatives include the establishment of a new company to manage the state’s vast property portfolio and opening up electricity transmission to private companies from this year.
The nation’s 10-party ruling coalition GNU, has prioritised growing the economy and creating jobs since it took office in 2024, after the African National Congress failed to win a parliamentary majority for the first time since apartheid ended.
The so-called government of national unity is credited with fostering a more pro-business approach to tackling South Africa’s infrastructure challenges, and since its formation, there has been significant progress in ending power cuts that hobbled output and investment for more than a decade, with outages having ceased over the past eight months.
For those sceptics among you (myself included): A recent study commissioned by the Business Leadership South Africa lobby group found the country’s broad trajectory remains positive and the reform agenda is delivering tangible results. It found that almost a quarter of the 245 measures that had been identified to enhance efficiency had been fully implemented, and most others were in progress.
In its regular economic health check published Wednesday, the International Monetary Fund said the country has proved its resilience in the face of global challenges, with gross domestic product projected to expand 1.4% this year and 1.5% in 2027, up from 1.3% last year.
The ongoing turnaround in the government’s performance, with a rally in metals prices, has underpinned the surge in South African asset prices.
The rand has gained almost 4% against the dollar this year, adding to a 14% jump in 2025, while yields on 10-year government bonds have dipped to below 8%, the lowest in more than a decade. South African stocks have also been on a tear, with the FTSE/JSE All Share Index up 45% since the start of 2025.
Despite the optimism, South Africa continues to grapple with deep social challenges. The official unemployment rate has exceeded 30% for more than five years, and runs even higher when those who have stopped looking for work are taken into account. Millions of people go hungry on a regular basis, and insecurity is a perennial problem.
The president acknowledged that scores of municipalities were deeply dysfunctional and unable to provide basic services — as evidenced by recent water outages in Johannesburg, Pretoria and other towns — and said the problems are being addressed.
“We have committed 156 billion rand ($9.8 billion) for water infrastructure and sanitation over the next three years,” he said, adding that he will chair a national water-crisis committee to ensure supplies improve. Finance Minister Enoch Godongwana will give details on how the initiatives announced by the president will be funded when he presents his annual budget on Feb. 25.
Global warming… What global warming (Trump2.0 edition)
US President Donald Trump is shrinking the Environmental Protection Agency (EPA) more quickly and aggressively than ever before, culminating in this week’s move to rescind the crucial “endangerment finding” underpinning key regulations of planet-warming pollution. This is the Obama-era endangerment finding, a 2009 scientific determination that greenhouse gases endanger human health and welfare. The policy underpins rules including federal emissions standards for cars and trucks.
And unlike Trump’s first term, the latest changes may be harder to reverse and result in long-lasting impacts on public health and the economy. Over the past year, the EPA has surpassed the staff and program cuts made during a similar period in the past. It has also launched more pollution control rollbacks, with (Trump-appointed) EPA Administrator Lee Zeldin proudly boasting about “the greatest day of deregulation our nation has seen”.
In my opinion, the biggest mistake was moving the focus away from pollution, easily seen, smelled and tasted, to the more nebulous ‘Climate Change’ or even worse ‘Global warming’ that the less informed dismiss the first time they get snowed in. Understanding the chemistry behind how pollution affects climate is probably a tad too ‘higher grade’ for the average Jo, not helped by regulations we saw in places like the Netherlands, famous for its cheese, to ban cows because they have ‘emissions’ – an instant meme.
The previous Trump administration had planned a public debate of climate science, at the time considered the first step in challenging the findings, but abandoned the effort before it officially began. This time round, any kind of debate and consultation is out of the window in this new authoritarian era.
This new move on the EPA is expected to immediately face legal challenges, and that’s the point! The administration wants to get the issue before the Supreme Court, hoping its conservative majority bucks precedent in upholding the repeal, he said. If that happens, the agency would be severely restricted from enacting climate rules long after Trump leaves office, placing the onus on Congress if the US is to pursue pollution reductions.
So far, the EPA’s legal track record is mixed. While a court order forced it to reverse course on firing some employees early last year, it has also had some legal wins, including an appeals court recently upholding the agency’s cancellation of billions in climate grants. As the agency races to finalise more regulations and policy changes, more lawsuits are expected.
The EPA argues that these changes are necessary for right-sizing the government, which it says overstepped its authority under previous administrations, hurting the economy.
“Under President Trump, the EPA is proving what previous administrations refused to accept, that we can protect the environment and grow the economy, said EPA Press Secretary Brigit Hirsch. “We are delivering cleaner air, land, and water while driving economic expansion.” And pigs fly.
China’s Reversal on CO2
China’s carbon dioxide emissions fell 0.3% last year, the first annual decline since Covid-era restrictions in 2022 — and more importantly, a reduction that’s happened even as energy demand growth remains strong. This is just as well, as the graph below shows.
(The graph also shows how almost comical it is for countries like the UK lean so heavily into CO2 emission reduction at the expense of their economy.)
A banner year for renewables drove down coal consumption despite the continued build-out of thermal power stations.
Last year, China for the first time covered all of its additional power demand growth with carbon-free sources and added enough energy storage capacity to account for the increase in peak demand. That’s created more options to avoid blackouts without resorting to fossil fuels.
While small (3%), the projected decline — which could be confirmed with analysis of energy consumption data expected to be released later this month — is a notable milestone in China’s efforts to halt the rapid growth in its climate footprint. It also underscores the prospect that wind, solar and batteries — all key exports for China — can support economic expansion in emerging economies without increasing pollution.
Even so, it’s too soon to judge whether China’s carbon emissions, which account for about a third of the global total, have definitively peaked. President Xi Jinping has only committed to reaching that turning point before 2030, and China continues to pursue an all-of-the-above energy strategy, which means the nation’s emissions could yet rebound
In order to meet 2030 goals set out in the Paris Agreement, China will need to reduce emissions per unit of GDP by 23%, according to Lauri Myllyvirta (Centre for Research on Energy and Clean Air), a large leap in ambition from the 12% reduction the nation has recorded over the past half-decade.
Another sector to watch is the country’s chemical industry. While emissions fell across power, metals production, cement and transport, there was a large jump from a surge of new plants using coal and oil to produce plastics and other advanced materials.
The amount of US emissions that the transportation sector accounts for is 28%. The EPA is also set to kill emissions standards for automobiles as it repeals the endangerment act.
The administration is framing the decision as a matter of affordability. Leavitt said the bulk of savings for consumers will come from reduced costs for new vehicles.
The dollar typically strengthens in times of economic or geopolitical strife, but in 2026 much of the uncertainty and political turmoil is coming from inside the US – and President Donald Trump has given a thumbs-up to the resulting plunge in the greenback. The dollar has dropped 9% overall against a basket of world currencies over the last year, and in January fell to its weakest level since March 2022. And the downward pressures don’t appear to be going away.
A weaker dollar reverberates across the US and global economies. In the US, prices of imported goods rise, making purchases of those products more expensive for American manufacturers and consumers, while American exports become more attractive to customers overseas.
There are multiple forces dragging down the US currency. But analysts say the Trump administration’s unpredictable foreign policy, including Trump’s on-again, off-again threat to take over Greenland and the removal of Venezuela’s president by force, are undermining the dollar’s normal role as a haven in times of uncertainty. Trump’s repeated attacks on the Federal Reserve’s independence have also put pressure on the US currency, as has the possibility of further interest-rate cuts by the central bank. Lower interest rates drag down the dollar as investors look elsewhere for higher savings rates.
The Trump administration and many analysts have argued that the dollar has become overvalued and that the recent weakness and outlook for continued depreciation is a reckoning the world should have been braced for. During Trump’s first term, the president highlighted that for decades, as part of the underpinning of globalisation, the dollar was artificially propelled higher by the rest of the world. Currency manipulation charges have been rampant over the past two decades at least. China and other Asian nations have often come under fire for forcing down their currencies, and European officials have made surprisingly frank admissions about not wanting the euro to exceed certain levels. US Commerce Secretary Howard Lutnick said on Feb. 10 that the dollar’s current value may be closer to where it naturally should be.
What role does the dollar play in the global economy?
The dollar is the closest thing there is to a global currency. It’s the cornerstone of international finance and the payment method of choice for more international transactions than any other currency. The US also uses the dollar as a foreign-policy tool, for example, by significantly limiting Russia’s ability to trade dollars after the country’s full-scale invasion of Ukraine in 2022.
A dominant currency needs a strong democracy, elements of which include the rule of law, an independent central bank, free and fair elections, and press freedoms. Not attributes one would ascribe to the US right now.
Trump also has pressured the Fed to cut interest rates and made clear he expects Kevin Warsh, his nominee to replace Powell, to carry out that policy, challenging a widely held belief that the central bank should operate free of political influence. All these moves have chipped away at confidence in the US currency.
Another source of pressure on the dollar is America’s debt pile. US public debt has risen to more than $38 trillion; its ratio to gross domestic product now exceeds 100%, the highest level since around the end of World War II. Rising federal borrowing hurts the dollar by eroding investor confidence in the US’s ability to fulfil its debt obligations.
Could the dollar really be dislodged?
It would take a monumental shift in global finance, economic growth and geopolitics for the reserve asset to switch completely to a different currency. And any shift would be a slow one, given how deeply entrenched the dollar is. The currency remains dominant in part because the US economy is huge, as big as No. 2 China, No. 3 Germany and No. 4 Japan combined. Overseas investors owned $31 trillion in US stocks and bonds as of June 2024, which would take time to unwind.
Any attempt to displace the dollar would require a currency that has deep, liquid debt markets, something that no other nation can offer. The lack of a unified euro-zone debt market that could compete with the dollar has been recently lamented by both Christine Lagarde, the European Central Bank chief, and Kristalina Georgieva, head of the International Monetary Fund. What’s more likely is that the world enters a period of multi-currency power with a dollar that’s dominant, but perhaps less so than today.
If the dollar experiences a sustained weakening against other major currencies, it is likely to be a boon for American exporters and manufacturers. It means overseas buyers of American-made goods will have stronger purchasing power since their currencies will have appreciated against the dollar. Still, manufacturing accounts for far less of the US economy than it did decades ago, meaning any bump in the sector may not be as large a boon as some may think. In the 1950s, more than 30% of working Americans had jobs in manufacturing. That number has fallen below 8%, even as Trump has promised to reindustrialise the country.
A weaker dollar could complicate the picture for US economic growth because it tends to spur inflation as US consumers are forced to pay more for non-US-made goods. And if the weaker trend persists, it would likely push up interest rates, causing pain for consumers as costs rise on home mortgages, auto loans and credit card debt. Higher rates also mean that the US government will have to pay more to finance the budget deficit, which could prompt Congress to consider steep budget cuts.
Talk of the dollar’s demise has bubbled up from time to time. In the 1990s, the Japanese yen gained attention as a potential rival. In the early 2000s, the euro appeared to be a possible challenger before the continent’s credit crisis eroded the currency’s status. Events in the US, including the withdrawal from the gold standard in 1971 and the financial crisis in 2008, also threatened the dollar’s dominance. Each time the currency persevered, in large part due to American economic strength and because there was no clear rival in the picture.
Author: Dawn Ridler
Freeing up the FED’s balance sheet has become all the rage. There is lots of talk in financial circles of what the Warsh/Bessent duo is going to do to unleash what they believe could be a better economic model for the US.
Up to now, the FED has played a dominant role using Quantitative Easing to smooth financial markets. In some cases, such as in a crisis, this cash is critical to the smooth functioning of the US financial system. Think of it as plumbing. Once the water stops, recipients are in trouble. This “water” is what the FED has been turning on and off over time to ensure that a small crisis doesn’t lead to a much later contagion.
The problem that the FED faces today is that world markets have become addicted to this liquidity. It’s affectionately known as the FED put, and it basically means that the FED will backstop a falling market with liquidity should the need arise. But under Stephen Warsh, there is now this clear intention to wean the world off liquidity.
Often, when there is liquidity stress, one can see this in the overnight rates. The Secured Overnight Financing Rate (SOFR) is a U.S. dollar overnight interest rate that reflects the cost of borrowing cash overnight collateralised by U.S. Treasury securities. This has been rising, which caused a SOFR crisis late in 2025, forcing the FED’s hand into releasing liquidity to force rates lower. So far, so good … will Stephen Warsh be equally happy to do so?
Perhaps he has no choice. When one views the FED, one sees it through a US-centric lens. This is correct as the US economy is their primary concern. But consider also that the FED is playing a much larger role in world economics than it did before. The Great Financial Crisis made the FED into a central figure on the world stage as they backstopped the US economy and, in turn, provided the much-needed confidence in the rest of the world that markets were safe again. The ensuing financial rules, which control bank reserves and other financial organisations, placed central banks such as the FED at the centre of a liquidity triangle between banks, dealers and ultimate recipients. The only way this changes is for more deregulation, which will take time. So the hope of a smaller FED balance sheet for now may just be that … a hope.
The other place Mr Warsh can make a difference is with interest rates. Below is a chart from Jurrien Timmer at Fidelity showing the Fed Funds rate (black line) and the forecasted dot-plot (where various FED members see interest rates in the future). There is clearly a move lower going forward, which will satisfy President Trump. But the SOFR market actually forecasts a rise in rates beyond 2026 and perhaps this is because the US economy is actually doing pretty well.
According to the IMF, the US economy is set to grow at 2.4% this year and a further 2% next year. So if the economy is growing, the FED stands the risk of dropping interest rates at a time when the economy actually doesn’t need it. Apart from the political pressure on the FED, they may just fuel spending at a time when the economy doesn’t actually need any help. The flipside to this is an even cheaper US Dollar.
Author: Cobie Le Grange
EXCHANGE RATES and other Indices:
The Rand/Dollar closed at R15.96 (R16,03, R16.15, R16.10, R16.50, …R16.91, R17.13, R17.36, R17.13, R17.27, R17.31, R17.25, R17.38, R17.50, R17.22 , R17.35, R17.33, R17.37, R17.58, R17.65, R17.44, R17.61, R17.74, R18.15,R17.76, R17.72, R17.90, R17.58, R17.89, R17.99, R17.92, R17.77, R17.95, R17.88)
The Rand/Pound closed at R21.78 (R21,82, R22.11, R21.97, R22.13, …R22.57, R22.68, R22.74, R22.56, R22.69, R22.76, R22.96, R23.34, R23.37, R23.19, R23.22, R23.35, R23.55, R23.73, R23.84, R23.53, R23.84, R23.84, R24.09, R23.88, R23.76, R24.22, R24.08, R24.49, R24.22, R24.35, R24.05, R24.18)
The Rand/Euro closed the week at R18.94 (R18.93, R19.14, R19.04, R19.20, …R19.68, R19.86, R19.99, R19.96, R19.98, R20.02, R20.06, R20.26, R20.33, R 20.22, R20.30, R20.35, R20.38, R20.61, R20.62, R20.44, R20.56, R20.64, R21.04, R20.86, R20.61, R20.93, R 20.70, R20.91, R20.74, R20.68, R20.24, R20,37)
Brent Crude: Closed the week $67.75 ($68,05, $69.32, $65.88, $63.34, …$63.71, $63.19, $62.42, $63.94, $63.61 $64.66, $65.04, $61.27, $62.14, $64.28, $69.67, $66.57, $66.80, $65.52, $67.38, $67.73, $66.08, $66.07, $69.46, $68.29, $69.21, $70.58, $68.27, $67.39, $77.27, $74.38, $66.56, $62.61, $65.41)
Bitcoin closed at $69,649 ($68,553, $81,301, $89,295, $90,585, … $90,809, $86,334, $94,990, $101,562, $109.936, $112,492, $106,849, $111,888, $124,858, $109,446, $115,838, $115,770, $110,752, $108,923, $114,916, $117,371, $118,043, $113,608, $118,139, $118,214, $117,871, $108,056, $107,461, $103,455)
Articles and Blogs:
Holiday checklist NEW
Next year – Action Plan NEW
Next year – Vision, Mission etc NEW
Medical Risk Mitigation
Next Year – Consolidation
Abdication or diversification?
Carbo-loading your retirement Spoiled for choice
Who needs a plan anyway
8 questions you need to ask about retirement
What to do when interest rates drop
How to survive volatility in your investments
What to do when interest rates drop
Difficult Financial Conversations
Financial Implications of Longevity
Kick Start Your Own Retirement Plan
You matter more than your kids in retirement
To catch a falling knife
Income at retirement
2025 Budget
Apportioning blame for your financial state
Tempering fear and greed
New Year’s resolutions over? Try a Wealth Bingo Card instead.
Wills and Estate Planning (comprehensive 3 in one post)
Pre-retirement – The make-or-break moments
Some unconventional thoughts on wealth and risk management
Wealth creation is a balancing act over time
Wealth traps waiting for unsuspecting entrepreneurs
Two Pot pension system demystified
Cobie Legrange and Dawn Ridler,
Rexsolom Invest, Licensed FSP 45521.
Email: cobie@rexsolom.co.za, dawn@rexsolom.co.za
Website: rexsolom.co.za, wealthecology.co.za