Next week I will be covering the Budget, so watch your inboxes for that. Will there be another nasty VAT surprise? Will medical aid tax credits bite the dust?
Your summary with links, if you’d like to curate your content:
🤖AI boom: hard landing, soft landing… or no landing?
Record AI capex is reshaping markets, with investors rotating out of expensive growth and quietly hedging against an overbuild cycle. The debate is no longer whether AI changes everything – it’s whether today’s spending can ever earn a decent return.
🏗️Big Tech capex reality check
Meta Platforms is using increasingly complex funding structures for data-centre build-outs, a move publicly defended by CEO Mark Zuckerberg. History (and a few spectacular blow-ups like Enron) suggests complexity plus heroic growth forecasts is not a free lunch.
🏦Central bank musical chairs – Europe and the US
Speculation that Christine Lagarde may step down early has put the European Central Bank back in political focus, with succession politics tied to Emmanuel Macron. At the same time, debate over Jerome Powell’s legacy and future keeps markets guessing about the independence of policy.
🍁Canada – quietly building a new trade map
Under Prime Minister Mark Carney, Canada is pushing hard to diversify away from the US and position itself as a stable energy and manufacturing partner. The political noise – including clashes with Donald Trump and the standoff over the Gordie Howe International Bridge – hasn’t slowed talks with fast-growing partners such as India.
🛢️Watchlist – oil and Iran risk
Rising tension around Iran is back on traders’ radar, with supply fears centred on the Strait of Hormuz. Comments from JD Vance underline that diplomacy is fragile – and the risk of an ugly energy shock is very real.
📦US trade deficit – tariffs, little payoff
Fresh figures from the United States Department of Commerce show the trade gap remains enormous, despite aggressive tariff policy. Smaller trading partners such as Bangladesh are being hit by higher duties, while US consumers continue to foot most of the bill. These have now been thrown out by the Supreme Court, and replaced with a balnket 15% tariff (for 150 days) globally.
This Week’s Roundup
RSA
In summary, this week, South African markets were shaped by inflation trends, policy expectations, the debut of new financial instruments, sector performance differentials, and anticipation of key data.
USA Markets & Economy
Global ex RSA/USA
AI bubble – hard landing or no-landing?
Watching the rise and rise of AI stocks, you’d have to at least think of the prospect of “where and how does this end?” US markets returned from the long weekend last week (President’s Day) for a non-eventful day. The S&P 500 gained 0.1%, and the 10-year Treasury yield rose one basis point. That overall picture of strength, the S&P is 2% off its all-time high, while the rest of the world is only 0.5% below a record, coincides with remarkably benign financial conditions.
The surface is important and can’t be ignored. Just below, however, the tectonic plates are shifting dramatically. The main driver is, of course, artificial intelligence, and the massive sums being spent on it. After a generation in which investors habitually complained that companies had no means to grow and were underinvesting, the latest survey of global fund managers by Bank of America Corp. shows that suddenly most money managers are now worried about overinvestment:
Investors are acting on this perception in a number of ways. One of the most eye-catching developments, aided by growing anecdotal evidence that the business models of existing software companies could be fatally damaged by the multiplying applications of AI, has been the sudden and massive outperformance of chipmakers. Usually, software and hardware move roughly together; now the fear is that huge increases in computing capacity will require ever more purchases from chipmakers and obliterate software codewriters:
The sea change in spending combines with truly exceptional macro conditions. The economy seems to be in a good place, and capex will juice it further. Yet expectations are firmly for both fiscal and monetary easing.
These factors have driven a dramatic shift in opinion on whether the global economy will suffer a “hard landing” (or recession) or overheat into a “no landing” scenario, which would ultimately lead to inflation and drastic measures to bring it to a halt. For the last few years, policymakers have helped execute an exemplary “soft landing” after the post-pandemic inflation spike. Last year’s Liberation Day tariffs briefly drove fears of coming down hard. And now, for the first time, more than half of the fund managers in the survey believe in a no landing:
This is happening as the full effects of the fiscal loosening from last year’s One Big Beautiful Bill begin to make themselves felt, with Americans receiving tax refunds. And despite this, two more rate cuts from the Federal Reserve are priced in as a certainty, with 50/50 odds of a third within a year (mostly due to Trump’s pick of Kevin Warsh as the new Fed Chair). There is also the anticipation that bond yields will RISE (leaning toward the no-landing hypothesis).
The last time investors were certain of higher yields ahead, short-term rates were still at zero. This is different. The US is out of practice tackling the inflation dragon – it’s literally been a generation since inflation was the problem it is, and has been for a couple of years in the States. A whole new generation of investors, asset managers learning the hard way, lessons we Saffers have had to contend with for decades.
How can one hedge against the possibility of a screeching halt to this magnificent stock party? Firstly, by rotating into non-US stocks (also aided by a falling dollar), into value (the leading AI over-investors are all emphatically growth stocks), out of the Magnificent Seven tech platforms, and secondly, into bonds rather than stocks. All of these things are happening:
In all cases, a rally after the Liberation Day tariffs ran out about three months ago. At that point, nerves began to set in that the AI buildout was going too far. Markets have been driven ever since by sensible attempts to take evasive action to guard against this.
In a Bank of America survey, the largest-ever overweight for the euro against the dollar and the largest overweight allocation to emerging markets (including South Africa) since 2021 were observed.
In the long term, the critical question is whether the record capital expenditures can generate a healthy return on investment. If they do, and the market’s continuing overall strength makes clear that most investors think this will happen, then more robust gains are ahead. If they don’t, then the rotation of the last three months will at least mitigate the damage.
Right across the world, central bankers continue to be concerned with inflation, with Australia the first country to raise interest rates this year.
The graph below gives the CPI broken down by the main components of food, energy, core goods and core services. As has been true for a while, overall inflation is now mainly a phenomenon of services, but the trend — having picked up last year during the turmoil over tariffs — is once again unmistakably downward:
The more sophisticated statistical measures the Fed uses to gauge underlying inflation pressures all indicate the problem is easing. Taking all the components of the index, both the median and the trimmed mean (excluding outliers and averaging the rest) are a little above the headline figure, but descending and at their lowest since the early days of the inflation spike in 2021.
The Fed’s favoured “Supercore” (services excluding housing) is also at a fresh low. The Atlanta Fed’s measure of sticky price inflation, for those products and services whose prices logistically take a while to change, also declined and is now at 3%.
Inflation isn’t back to the range around 2% it occupied for many years before the pandemic. Policymakers would prefer it to fall further. But disinflation has resumed despite resolute attempts to stimulate the economy. This gives no particular reason for the Fed to cut rates next month, but if the current trend continues, then it’s fair to expect more cuts by the end of 2026. That is what the market is now discounting, with two likely in the last six months. Does Warsh follow Trump’s request and cut rates even if they are not warranted, or does he have the fortitude to do what is right for the job? Only time will tell.
This doesn’t mean that the authorities have the all-clear on inflation, unless they would accept an effective target closer to 3%.
The latest official data show that U.S. real GDP growth slowed sharply in Q4 2025, but the economy expanded moderately for the full year 2025. Q4 2025 real GDP (advance estimate): +1.4% annualised, down from +4.4% in Q3 and below market expectations of 2.8–3.0%. Full-year 2025 real GDP growth: +2.2% vs +2.8% in 2024, measured from the 2024 annual level to the 2025 annual level.npr+2 Consumer spending and private investment, particularly in services and equipment, still added to growth. A fall in federal government spending (linked to the Oct–Nov 2025 shutdown), weaker exports, and softer goods consumption weighed on Q4.
More Central Bank Musical Chairs
Before Washington could even bring the saga of replacing Jerome Powell at the Federal Reserve to a conclusion, a similar drama is starting in Frankfurt. Christine Lagarde may be planning to step down before the official end of her term in October 2027. The report hasn’t been confirmed, but it rings true as it would ensure that the existing French president, Emmanuel Macron, has a role in choosing her successor. By next May, there’s a real possibility that France will have elected a hard-right leader, and their choice could be far more politically motivated.
Like Powell’s tenure, Lagarde’s will divide opinion for years to come, but Lagarde stands to leave with the European financial project looking its healthiest in years. Crucially, the market is beginning to relax over the fiscal crisis in France, which caused the yields of French OATS (Obligations Assimilables du Trésor – 10 yr treasuries) to explode after Macron’s disastrous snap election in 2024 left the country with a logjammed legislature.
The recent weak dollar has also boosted the euro’s buying power. In real effective terms, taking account of inflation, the currency is its strongest in more than a decade, at the top of its range since Greece’s fiscal woes plunged the continent into a sovereign debt crisis in 2010:
Once an ECB leadership is in place, the bank is more capable of swift and decisive action than any other European institution, as it has shown in successive crises. Europe has a unique opportunity to step into the void left by the US’s increased isolation and anti-globalisation. Committees are notoriously bad at making bold moves, but across the pond in Canada, Carney has been forging his own mini-United nations. There has even been talk of Canada (and others) joining the EU.
Mark Carney has proven to be a pleasant surprise in the messy politics of the last year. Seemingly immune to Trump’s schoolyard rhetoric, Canada’s attempts to diversify trade away from the US and find willing partners are picking up speed,
They’re all part of Canada’s broader goal of boosting non-US exports by C$300 billion.
Interestingly, Canada has emphasised its adherence to the rules-based system and stands in stark contrast to the press release last Monday from the US Trade Representative’s office in Washington, announcing that a so-called reciprocal arrangement was struck to slap a 19% US tariff on imports from Bangladesh, a country that accounts for about 0.5% of America’s overall goods trade deficit.
Then there is the fiasco over the Gordie Howe International Bridge.
The ongoing Canada-US bridge dispute centres on the nearly completed Gordie Howe International Bridge linking Windsor, Ontario, and Detroit, Michigan. President Donald Trump has threatened to block its opening, demanding shared US ownership and authority despite Canada fully financing the $4.7 billion project, which is jointly owned with Michigan. The spat, tied to broader trade tensions over dairy, alcohol, and steel usage, prompted talks between Trump and Prime Minister Mark Carney, who expressed confidence in a quick resolution to avoid economic fallout. Michigan leaders warn delays could disrupt vital trade flows.
Canada is positioning itself as a reliable, stable partner.
Asian economies need energy to power new data centres and other areas of development, and Canada has natural resources in abundance.
India’s economy, in particular, is growing 6% to 8% annually and will need 70% more energy by 2040. Guess what, Canada is well-positioned to serve those markets. To handle more imports and exports, Canada is expanding maritime infrastructure. They have met with officials from Singapore’s port authority and sovereign wealth fund, in addition to previous meetings with partners from the Gulf region.
Canada is pursuing several free trade deals, including current talks with India, the Philippines, Thailand, the UAE and Saudi Arabia, as well as with the ASEAN and Mercosur blocs.
President Donald Trump recently ripped into Canada for making trade concessions with China that will ease tariffs on Canadian canola exports. In return, Canada agreed to allow imports of up to 49,000 Chinese-made EVs annually. It’s not just the Chinese who are interested; they also hosted Hyundai recently. Ditto Germany. Interestingly, Canada is the only Western economy that has every element to make an electric battery.
Chatter around Iran has subsided considerably from its peak last year, but the possibility of it flaring up again is on the rise.
The Iranian government plainly does have its back against the wall and may be getting desperate, while the US military buildup in the region is immense. Prediction market bettors now put the odds of a US attack at around 70%, while crude oil prices are rising. Brent surged 4.3% last Wednesday, topping $70 once more. Just a reminder: here is a map of oil and gas fields in the Persian Gulf – one of the biggest pressure points is the Strait of Hormuz.
US Vice President JD Vance said of this week’s latest round of talks on Iran’s nuclear program: “In some ways it went well.” But he added that Iranian representatives were still unwilling to acknowledge the red lines set for them, and so the possibility of conflict in a matter of weeks remains very much open.
In normal times, the US-Iranian saga would have dominated the news bulletins since the turn of the year, and markets would have turned on it. The country’s ability to administer a major oil supply shock, and its willingness to do so if attacked, are not in doubt — even if the long-term consequences of a new regime might well be very positive. As it is, the situation is only clearly affecting oil (where supply is plentiful and prices start from a low base) and prediction market bettors. In some ways, it’s positive that broader markets feel able to ignore Middle Eastern brinkmanship. But this does intensify the risk of a major financial accident if the worst comes to the worst on the ground.
US Trade deficit – are tariffs working?
Donald Trump’s global trade war has not had (as of yet anyway) the desired effect when it comes to America’s yawning trade deficit. In fact, the gap grew in December to $70.3 billion.
This, according to data from his own administration. The US Commerce Department reported that the shortfall culminated in a full-year deficit of $901.5 billion—one of the largest in data back to 1960.
Trump has said tariffs are part of his strategy to reduce US reliance on foreign goods, encourage domestic investment and correct decades of declines in manufacturing employment. Recent data, however, has borne out a year of warnings from economists, showing it is largely American consumers and companies who are paying for Trump’s tariffs rather than foreign countries.
The sweeping emergency tariffs imposed by President Trump under the International Emergency Economic Powers Act (IEEPA)—which had driven much of the 2025 trade policy and contributed to Q4 GDP drags—were invalidated by the U.S. Supreme Court on February 20, 2026, as exceeding presidential authority, slashing the effective tariff rate from ~16.9% to ~8.3% and risking ~$175 billion in refunds. In response, Trump immediately pivoted, announcing a temporary 10% global tariff on all imports for 150 days under Section 122 of the Trade Act of 1974 (effective ~Feb 23), layered atop existing Section 232/301 duties, with Treasury projecting stable 2026 revenue. He quickly escalated it to 15% by Feb 21 amid new Section 301 probes into unfair trade, bilateral deals (e.g., lower reciprocal rates with India/Taiwan), and vows to “work around” the ruling without refunds, aiming to replace IEEPA revenue while reshaping global trade patterns.
Author: Dawn Ridler
Capex, Capex, wherever you look!
Capex expenditure is ramping up seriously for tech companies. One estimate shows that in 2025, the Magnificent 7 spent $331 billion on new infrastructure. Compare that with 2024’s $220 billion and $2023’s 200 billion. This isn’t going to slow down. Estimates now show that $400 billion is on the cards for 2026 and could even creep higher from there.
Ultimately, all of this cash will need to yield a return. The large players, luckily, have the cash resources to use minimal debt, but even then, shareholders are going to require higher returns, as the cash could have been used elsewhere or shared with shareholders in the form of dividends.
Meta is an interesting point in case. So far, they have used their advertising cash resources to fund their ambitions while repurchasing their own shares. Then, in October 2025, the company announced a $30 billion bond issuance and the use of a special-purpose vehicle (SPV). This is where Meta and other shareholders make cash contributions, which are used alongside debt to build a data centre. Meta becomes the customer and pays a monthly rental. On the face of it, this is all fine, but it increases the organisation’s complexity.
I note that Enron was rife with SPV vehicles, all of which hid losses, which ultimately led to its demise. One SPV for Meta isn’t going to cause their demise, but is this the trend for the future? Last week, their CEO, Mark Zuckerberg, had to defend the company’s policies regarding minors. So, before one thinks their advertising revenue is bulletproof, it can change with the stroke of a legislative pen.
And I think that in part this is what Meta is considering.
Their business model was easier to implement and maintain worldwide, whereas now various countries are either implementing or considering curbs on social media use by minors. But what Microsoft has proven over decades is that if you become too big or systemically important, failure becomes more difficult. Perhaps Meta is hoping that their capex spend will result in a company which ultimately becomes a systemic player. Time will tell. A recent article by Michael Mauboussin and Dan Callahan, titled “Bayes and Base Rates”, explores the increase in capex spending by AI players and asks whether their growth assumptions are reasonable. To answer this question, they look to the past. They build a distribution for company sales growth and use the long term to identify the trend. Here is the graph:
So the data goes back to 1950 and asks what the 5-year sales growth looked like for these organisations. You can see the p.a growth rate clusters around a mean of 5.7%. According to the study Oracle indicated that they see their cloud sales going from $10 billion to $166 billion by 2030… a 75% compounded growth rate.
The data suggests that this is impossible. Look at how few companies have historically achieved annual growth rates of 30-40%… None at 75%. Meta suggests that their growth rate is more muted at 15% p.a. Here, the data suggest they fall within what is reasonable from a back-tested perspective. But this study goes further, and it quotes research by Bent Flyvbjerg and Dan Gardner, How Big Things Get Done, which summarises the failure rate of big projects.
Here, the data is startling.
They analyse 16,000 large projects from 136 countries in more than 20 fields. Only 47.9% makes it on budget or better, whereas the rest fail. Building data centres requires multiple role players across the project, and once completed, the IT kit becomes a separate project alongside the power-generating capacity to run the data centre. Result-oriented shareholders may find it difficult to reconcile these findings with their insatiable demand for sales. I think the evidence that big data is a game-changer for tech companies may take longer than most people think.
Author: Cobie LeGrange
EXCHANGE RATES and other Indices:
The Rand/Dollar closed at R16.01 (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 R21.59 (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 R18.87 (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 $71.76 ($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 $68,04 ($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