Making Capital Markets Make Sense: What Moved Markets Last Week
If there is one takeaway for investors above all others from yet another tumultuous week in world markets, it may be this: the safe-haven status of U.S. Treasuries and the dollar’s status as the world’s reserve currency are now in serious doubt.
Trump’s tariff plan sparked a market roller coaster for the ages. The S&P 500 erased $5.8 trillion in market value in the days after the president’s ‘’Liberation Day’’ announcement before finishing with a gain of $4 trillion on Wednesday last week, its best day since 2008. Treasury bonds, seen as havens in periods of volatility initially performed as expected when markets started cratering. Then suddenly and violently switched direction, stoking worries about market strain.
For the greater part of the week, the US dollar tanked, US equities tanked and Treasury prices tanked, as investors dump US assets for safer alternatives. A sign that the US exceptionalism could be waning.
Typically, during periods of market volatility, investors flock to US Treasuries and the dollar. However, last week saw a sell-off in both as investors turned to gold, the Japanese yen and the Swiss franc for safety.
Traditional ‘safe-haven’ assets like gold, the Japanese yen and Swiss franc rose significantly this week, as did the euro.
As tariff developments continued to dominate headlines on global markets, the US and China raised tariff rates against each other, further escalating a trade war between the world’s two largest economies.
However, economies received a major reprieve after Trump announced a 90-day pause on most reciprocal tariffs except for those against China. Trump’s move led to one of the most explosive single-session rallies in history, especially on Wall Street.
The S&P 500 soared more than 9 percent to log its best intraday performance since the Global Financial Crisis in October 2008. Not to be outdone the Nasdaq Composite skyrocketed more than 12 percent to notch its second-best day ever.
There is a growing belief – indeed, fear – that the Trump administration’s economic, fiscal and political agenda is undermining the credibility and reliability of the U.S. financial system.
Investors are voting with their feet. Extreme bouts of volatility are usually accompanied by a rush into the US dollar. The exact opposite is happening to date.
De-dollarization was unthinkable for a very long time – until this last week. U.S. President Donald Trump’s tariffs and all-out trade war with China appeared to hammer another nail in the coffin of ‘U.S. exceptionalism’ last week as the dollar and U.S. bonds got crushed, stoking concern over the dislocation at the long end of the Treasury curve.
The volatility and uncertainty around global trade during the week weighed on U.S. Treasuries, which generated negative returns as yields increased across most maturities.
In US, for the week, the S&P jumped 5.7 percent, while the Nasdaq advanced 7.3 percent and the Dow gained 5 percent. The STOXX Europe 600 Index ended 1.92 percent lower as trade tensions intensified.
Wall Street just notched its best week in years, but it would be disingenuous to take that at face value. The bounce was entirely due to the historic relief rally on Wednesday after Trump’s tariff climb-down, only half of the previous week’s losses were recovered, and the VIX volatility index is still roughly double its ‘normal’ level.
In Lesotho, Lesana Financial Services Lesotho Limited became the first company in the country to issue a corporate paper and to get it listed on the local bourse, the Maseru Securities Market (MSM).
The historic moment also ended the barren and stasis period for the exchange which last recorded a listing in 2021, of RNB Properties Limited on the equity side.
The listing of the Lesana MTN last week, was a perfect response (that needs to be replicated across all the sectors of the economy) to current global developments.
In the face of dwindling global funding, tariffs, and geopolitical tensions, we must wean ourselves from aid dependency and urgently chart our future through efficiently utilising our infrastructure, institutions and resources.
The recent dismantling of the official development aid agency in the US, and similar anti-aid measures in other parts of Europe, means that the old development models that Lesotho has always relied on will no longer work.
To build a resilient economy, we must chart our future by fully utilising our capital markets, not relying on the benevolence of others but on our own determination for self-reliance.
Preference in trade is temporary and dependency is not independence.
Raising capital and listing on a securities exchange is an important milestone for any business, it is a statement of intent. Such a listing will increase the market liquidity of the security, enhances brand visibility and importantly allows Basotho an opportunity to participate in local capital markets. Capital raising function of the exchange is important for financing firms and fosters the spirit of innovation entrepreneurship and inspires economic growth.
Commodities and currencies
Crude oil ended the week lower amid heightened volatility as the prospects of a global economic downturn rose. Prices slumped earlier in the week after President Trump announced higher than expected reciprocal tariffs on major trading partners.
A relief rally was triggered after Trump backtracked and announced a 90-day pause on these levies. The sudden shifts in US trade policy left the market in two minds, with prices swinging wildly all week. However, uncertainty is likely to linger. Oil makes up around 33 percent of current global energy consumption, so it has a close correlation with world output. An economic downturn could see oil market balances soften significantly. This will be exacerbated by OPEC’s plans to accelerate planned output hikes, as it tries to pressure members to adhere to quotas.
The risk off tone across markets helped push gold prices to record highs this week.
The precious metal ended the week up 6.6 percent to close at USD3,214.93 an ounce, boosted by the flight to safety in global markets as fears of a worldwide recession engulfed markets. Risks and uncertainty remained high despite Trump announcing a 90-day pause on the reciprocal tariffs.
The US dollar slumped further last week against the other major currencies as markets reflected a higher probability of a US recession and more aggressive cuts in US interest rates. The euro is traded around $1.136, its strongest level since the second week of February 2022. The British pound has firmed to $1.31 after it had dropped to $1.27 on Monday, while the Japanese yen is stronger at ¥142.60. The Canadian dollar has firmed to CAD1.39/$, its strongest level since Trump’s election in November 2024, on high hopes that Canada will reach a favourable trade deal with the US.
Last week the rand (loti) weakened in volatile trade, bogged down by global risk aversion, amplified by South Africa’s political woes.
The local unit slumped to R19.75/$ on Tuesday, its weakest level since late May 2023 and remains under intense pressure. Other emerging market currencies have fared better than the rand, magnifying the influence of domestic factors. Investors are concerned about the stability of the Government of National Unity (GNU), particularly the likely direction of economic policy if the GNU collapses.
If the ANC partners with leftist parties, the shift towards more populist policies would hurt confidence and put the rand under even more severe pressure.
This week, markets will still be glued on the twist and turns around the tariffs narrative. Until there is clarity — a deal with China or a defined US strategy — volatility will continue to dominate. Volatility and uncertainty are the only certain at the moment.
Until next week enjoy making money on capital markets.
Looking for a helping hand in the market? Thinking of raising capital (issuing shares or bonds), listing shares on the securities market, buying or discounting bonds, Treasury bills, equity trading and capital markets news and information? Contact us today.
Leonard Nyambuya
Katleho Securities, (Member of Maseru Securities Market)
+26622320841, 59709178, 53230700, 68730055
lnyambuya@katleho.co.ls, securities@katleho.co.ls, www.katleho.co.ls
leonardnyambuya@yahoo.com, leonyambuya75@gmail.com
Plot Number 12292-972 Mabelebele Street, Katlehong, Maseru, Lesotho
