Financial markets remain bullish after SA picks Cabinet
|Published
The announcement of the new Cabinet of the Government of National Unity by President Cyril Ramaphosa last Sunday, brought calmness to South Africa’s financial markets.
The share and capital markets continue their recovery after the previous week’s uncertainty.
Expectations that the South African economy may grow by more than 2% in 2024 also started to emerge after the new Cabinet was announced.
Six favourable factors underline this possibility. The absence of load shedding since the beginning of April, expected lower interest and inflation rates, a stronger rand exchange rate due to capital inflows, better exports due to better infrastructure and higher global prices for commodities, especially gold and platinum and the expectation of the government budget recording a primary surplus will steer this improved growth.
On the JSE, equities advanced as the All Share index (AlSI) reached record levels a few times during the week. The index closed on Thursday on a new high of 81 155 points and ended the week 1.4% in the green.
Since the beginning of the year the ALSI gained 6.72%, The All Share Industrial index ended last week flat, but also gained 6% for the year-to-date.
The FIN15 index also ended the week flat after big selling against the bank and other financials took place on Friday.
Resources were once again the biggest winners last week. The Resource 10 index gained 4.9%. Precious metals seem to have overcome their sideways movement of the previous couple of weeks.
The gold price increased by $63 (R1145) to close Friday at $2 389 per ounce, while the price for platinum shot up by $40 to $1033.50.
Equities prices were influenced a bit negatively in late trade on Friday afternoon after the release of the US non-farm payrolls data for June indicated that the economy created more jobs than expected.
This as 187 000 news jobs were added despite the rise in the unemployment rate from 3.7% to 3.8%. Average hourly earnings have increased by 0.2% during the month.
These better-than-expected employment numbers underscore market sentiment that the Federal Reserve will abstain from lowering interest rates at its next meeting later the month.
In reaction equity prices ended last Friday in the green as the job data reflects the US economy remaining strong. On Wall Street, the S&P500 improved by a further 1.43% last week, strongly ending Friday evening after the job-data.
On the foreign exchange market, the rand exchange rate recovered after the uncertainty on the new Cabinet was resolved.
The rand appreciated with 20c since last Monday to close on R18.17 to the dollar in late trade on Friday. Against the pound sterling the currency ended the week flat on R23.29/ £, the same as last Monday.
This coming week domestic markets will await the release by the SA Reserve Bank of the country’s level of foreign exchange reserves at the end of June on Monday.
On Thursday Statistics South Africa will publish the latest (May 2024) data on the country’s annual mining and manufacturing production growth.
Movements on global markets this week will be dominated by the testimony speech of US Federal Reserve (Fed) chairperson Jeremy Powell to the US senate on Tuesday and Wednesday.
On Thursday, the US will release its various inflation rate data indices for June 202. The main attention will be on the annual core inflation rate that is expected to remain at 3.4% and still higher than the 2.0% target set by the Fed. This should strengthen sentiment that the Fed will not lower its bank rate soon.
Chris Harmse is the consulting economist of Sequoia Capital Management and a senior lecturer at Stadio Higher Education.
BUSINESS REPORT