Markets balance earnings and inflation risks

Market Commentary

South African equities ended Wednesday mostly in positive territory, with the FTSE/JSE All Share Index adding 0.64% to close at 109 682.63 points. The blue-chip Top 40 Index also firmed, rising 0.84% to finish at 101 614.59 points. JSE Metals and Mining led the gains climbing more than 5% as a sharp rally in precious metals lifted the sector.

The market’s advance came even after the latest inflation data surprised to the upside, with consumer prices rising to 5%, above market expectations. According to PSG's Chief Economist, inflation is expected to ease to around 4.70% in July, supported by lower fuel prices. Prior to the renewed Middle East conflict, a further meaningful decline in petrol prices had been expected. However, that now appears unlikely, with petrol prices projected to fall by only around 60 cents per litre and diesel prices expected to increase. Consequently, inflation is likely to remain around 4.70% in August rather than easing further. Investors now await the South African Reserve Bank’s interest rate decision.

US markets ended the session lower, with the Dow Jones Industrial Average finishing broadly unchanged, while the S&P 500 fell 0.14% and the Nasdaq Composite slipped 0.47%. Sentiment stayed cautious as investors weighed quarterly results from major technology groups such as Alphabet and Tesla, alongside firmer oil prices and renewed trade uncertainty. Chip stocks that have been key drivers of the artificial intelligence-led rally, including Micron Technology and Nvidia, rose 0.25% and 3.20%, respectively. Meanwhile, major hyperscalers have come under pressure in recent months amid concerns over rising capital expenditure.

The US banking sector continued to deliver resilient results, helped by strong trading activity and a rebound in investment banking. Several of the largest US lenders posted solid year-on-year growth in both revenue and profit, with profitability reaching multi-year highs.

Reports indicate that US President Donald Trump plans to replace the temporary 10% global tariffs with fresh levies on products from dozens of economies by Friday, including a proposed 100% tariff on imported generic medicines in the future. In addition, a new 25% tariff on Brazilian imports took effect on 22 July 2026, deepening concerns over a further escalation in global trade tensions.

European equities closed notably higher on Wednesday as upbeat corporate results helped counter a weakening macroeconomic backdrop. The Euro STOXX 50 increased 0.50% to close at 6 319, while the broader STOXX Europe 600 climbed 0.60% to 647.

Against this environment, strong corporate earnings provided further support to investor sentiment. Santander rose 1.70% after reporting a 17% year-on-year increase in underlying profit, driven by client growth following its acquisition of UK lender TSB. Other banks also benefited from positive earnings momentum, with BBVA adding 2%, Intesa Sanpaolo rising 1.30% and UniCredit edging up 0.70% ahead of its results data release today. Meanwhile, aerospace group Airbus surged around 7% after raising its delivery targets and announcing a €5 billion share buyback.

Attention now turns to monetary policy, with the European Central Bank widely expected to leave interest rates unchanged later today. However, policymakers are likely to maintain a cautious stance if inflation risks continue to persist.

Asian markets closed lower, as a sharp rebound in semiconductor and technology shares offset lingering concerns over rising geopolitical tensions. Japan’s Nikkei 225 edged down 0.18% to close at 66 115.60, while Hong Kong’s Hang Seng Index fell over 1%, as renewed trade concerns and caution around the technology sector weighed on sentiment. The Shanghai Composite edged down by 0.07%.

Crude oil futures climbed to a six-week peak on Wednesday, reaching around $88.60 per barrel before easing back to approximately $86.50 as traders assessed the potential impact of disruptions to Middle Eastern supply. Brent crude briefly touched a six-week high of about $94.40 before settling near $94.00 per barrel. Markets continued to advance despite ongoing US-Iran strikes, which have disrupted oil and fuel exports from Gulf Co-operation Council states, while increased threats from Yemen's Houthi rebels to commercial shipping in the Red Sea added to geopolitical uncertainty. Further supply concerns emerged following attacks on the Caspian Pipeline Consortium terminal on the Black Sea. These supply fears were partly offset by data from the US Energy Information Administration indicating an unexpected increase in US crude inventories.

Gold moved above $4 100 an ounce and silver pushed through $60 an ounce, with ongoing tensions in the Middle East, stronger safe-haven demand and tight supply conditions in industrial metals underpinned the rally.