Prospects for financial markets remain on the upside
|Published
POSITIVE sentiment remains towards South Africa after the announcement of the new cabinet of the National Government of Unity by President Cyril Ramaphosa.
Share and capital markets continued their second consecutive week of recovery. Supporting the more positive approach by international investors towards South Africa, economic data and market movements in precious metal prices also contributed towards the bullish movement on the equity, bond and foreign exchange markets.
The announcement in the US that its annual core consumer price inflation rate (inflation, excluding food and energy prices that tend to move volatile), has decreased to a three-year low of 3.3% in June kept market sentiment positive. This is down from 3.4% in May and below market forecasts of 3.4%.
The better-than-expected inflation figure follows the announcement the previous week by the US Department of Labour that the US unemployment rate in June had increased further to 4.1% against 4% in May and higher than expected 4%.
These two factors increase expectations that the US Federal Reserve may cut its bank rate at their meeting in September – earlier than was expected during remarks at the Fed’s last meeting.
These expectations, as well as the continuous increase in precious metals prices, especially gold and platinum, has led to the JSE setting a record close level of 81 686 points on Friday. This is 1% up from the previous Friday, 5.25% higher over the last month and 7.9% higher for the year-to-date.
The Industrial board climbed by 1.9%, the Resources 10 index was flat and the FIN15 board gained 1.4%.
The rand exchange rate continues to appreciate strongly. During last week, the currency gained 22c against the dollar reaching R17.96/$ in late trade on Friday evening. Over the past month the rand has improved by 100c against the dollar as foreign buying of shares and bonds continues, and the precious metals gold and platinum keep on rising.
Gold bullion traded higher again than $2 400 (R43 089) per ounce last week, closing at $2 414 on Friday, while the platinum price broke through the $1 000 per ounce level again ending the week at $1 001.
Equities prices on Wall Street remained bullish. The Dow Jones Industrial index traded 1.6% higher last week, the S&P500 gained 0.8% and the Nasdaq improved by 0.25%. Positive sentiment in the US prevails as traders start to bet on a surprise Fed cut in September or October on the back of the big demand for October Fed Fund Futures. The price of the futures points to a possible 50 basis points cut.
On the commodities market the oil price also starts to fall in anticipation of an agreement between Israel and Hamas seems to be on the cards. The price for Brent fell more than $1 last week trading at $85.06 on Friday.
This coming week, domestic markets will await the outcome of the interest rate decision by the Monetary Policy Committee on Thursday. It is expected that the committee will keep the repo rate unchanged at 8.25%, holding the prime overdraft rate at 11.75%.
On Wednesday, Statistics South Africa will release the retail sales for May. Retail sales remain under pressure, and it is expected that the annual sales at counters will decrease by -1.0% against a modest 0.5% annual growth in April. Consumers will stay under pressure waiting for a cut in interest rates later this year. Sharp tariff increases for electricity also impede sales of retailers.
Movements on global markets this week will be dominated by the speech of Federal Reserve chairperson Jerome Powell on Tuesday and the US retail sales data on Wednesday. In Europe and the UK, will announce its inflation rate on Wednesday and its unemployment rate on Thursday. The EU will release its inflation rate for June on Tuesday and the ECB will announce its interest rate decision on Thursday.
Chris Harmse is the consulting economist of Sequoia Capital Management and a senior lecturer at Stadio Higher Education.
BUSINESS REPORT