Equity markets, rand bounce back
|Published
Most equity markets across the globe bounced back last week to recover their losses after the big sell-off the previous Monday. On the JSE, the All Share index recorded a new record high closing level of 82 824 points on Friday.
The index gained 2.6% last week and ended 9.4% higher for the year to date. The financial board did the best last week as the FIN15 index advanced by 4.5% over the five days. Resources moved flat, with the RES10 index gaining 0.6% and the All Industrial index winning 2.5%.
The main reason for this strong recovery came from the US annual inflation rate, which dipped below 3% in July on 2.9%. It is the first time since March 2021 that the consumer price index (CPI) increase was lower than 3.0%. The more major gauge of inflation that the US Federal Reserve looks at in its interest rate decision, namely core inflation, also came down to 3.2%, meeting expectations.
Analysts and investors have started to discount not only the reality of a cut by the Fed next month, but also the possibility of a 50 basis points decrease against the previous estimation of 25 basis points.
After sentiment turned negative the previous Friday on worse-than-expected US unemployment data, the announcement of the retail numbers for July last Wednesday wiped out all fears of a recession in the US. Sales at the counters of retailers grew by a solid 1.0% in July, beating economists’ expectations of 0.3% by a large margin. These two main US economic indicators boosted risk investment in equities around the globe.
On Wall Street, the Dow Jones Industrial index gained 2.8% last week, while the S&P500 index added 3.8% and is now 17.5% higher than the beginning of the year. The Nasdaq gained more than 5.0%.
On the foreign exchange market, the rand also recovered strongly and at the close on Friday traded on R17.87 against the dollar, gaining 46 cents since the previous Friday close of R18.33.
Against the euro, the rand traded on Friday evening on R19.67/€ against the R20.03/€ the previous Friday. The rand appreciated against the pound by 30c, to R23.08/£. The gold price also bounced back strongly last week, and closed on Friday on a new record high of $2 498 (R44 946) per ounce.
South Africa’s unemployment rate “suddenly” rose from 32.9% during the first quarter this year to 33.5% during the second quarter. For many analysts as well as the public it came as a surprise. The consensus expectation in financial markets was a drop to 32.7%.
Approximately 158 000 more people were unemployed in quarter two than in quarter one. In the formal sector of the economy, 92 000 people lost their jobs.
According to the wide definition of unemployment (that consists of people that cannot find a job plus the discouraged workers) there were 11 579 persons unemployed, or 46% of the labour force. This is a strong increase from 45.1% during the first quarter. One, however, should have expected this increased number.
The South African economy grew at levels close to zero during quarter four 2023 (0.3%) and quarter one 2024 (00.1%).
Manufacturing production in South Africa tumbled by 5.2% year-on-year in June 2024, after a 1.2% fall in the prior month.
South African retail sales also grew only 0.8% in May, the beginning of the quarter, and are expected to record no or very low growth for the rest of quarter two.
Most countries in the world experienced sharp increases in their unemployment during the second quarter. In the US, the unemployment rate grew from 3.7% at the beginning of quarter two, to 4.3% in July. The rural unemployment rate in India rose to 9.3% in June from 6.3% in May, while the urban unemployment rate climbed from 8.6% to 8.9%.
On domestic markets, investors await the release of South Africa’s inflation rate for July on Wednesday. It is expected that the annual rise in the CPI will be 5.0%, against the 5.1% annual increase in June.
Movements on global markets this week will be dominated by the release on Wednesday of the US Federal Reserve’s minutes of their last meeting. On Thursday, the three-day Jackson Hole Symposium starts, while on Friday, Fed chairperson Jerome Powell will deliver a policy speech.
Chris Harmse is the consulting economist of Sequoia Capital Management and a senior lecturer at Stadio Higher Education.
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