South African financial markets record new record highs

Equities on the JSE, precious metal prices and Rand on Friday ended stronger for the third consecutive week. Despite the higher-than-expected US inflation rate for August that was released on Thursday, sentiment on global markets remains that the Federal Reserve will decrease its Bank rate this Wednesday September 17.

The US core inflation did increase from 2.7% in July to 2.9%  August as was expected by markets, but is now significantly higher than the 2.0% inflation target of the Fed. Prices increased were felt mostly for food (3.2% vs 2.9% in July),  used cars and trucks  experienced a sharp annual increase of 6.0% against the 4.6% in July and  the yearly acceleration for new vehicles was 0.7% against 0.4% the previous month. Evidence suggests that the higher tariffs that were introduced by the Trump administration at the beginning of last month contributes to these sharp increases. 

In reaction to the sharp increases in both the US inflation rate and its unemployment rate, the US dollar continues to depreciate. Together with the strong demand for gold as haven, the gold price ended Friday at a new record high of $3 651, almost $300 over the last month and $1 010 since the beginning of the year.

On the JSE the all share index broke through the 104 000 point level for the first time on Friday and closed on 104 458 points. This is an increase of 2 926 (2.9%) since the previous Friday and 23.6% up for the year-to-date.

On the foreign exchange market, the Rand improved by 21 cents last week against the dollar trading at R17.36/$ at the close on Friday. This has been the strongest level since November 7, 2024. Against the Pound the currency appreciated last week by 20 cents to R23.56/£ and with 25 cents against the Euro to R20.37/€. The higher than expected 0.8% economic growth rate during the second quarter also contributed to the bullish movement on the JSE, especially on the financial and industrial boards. 

Fed lowering rates remains a strong possibility. 

Most of the 107 economists taking part in a Reuters Poll expect that the Fed will cut its bank rate on Wednesday by 25 basis points and with another 25 basis points during the next quarter. The weaker labour market that is expecting not to create any more new jobs seems to overshadow inflation risks. Although stocks on Wall Street evaluated the dovish outlook by the Fed on interest rates, JPMorgan said this week that the Fed decision on September 17 could end up sending stocks into a nosedive as investors "sell the news”, meaning that investors may pull back to evaluate the poor macro-economic data.

"This current bull market feels unstoppable with new support forming as former tent poles weaken," wrote said Andrew Tyler, the head of global market intelligence at JPMorgan. On Wall Street, the Dow already started to move negatively on Friday as the index lost 0.6% Friday, although it still gained 0,95% over the week. The S&P500 ended the week flat but remains in the green for the week, winning 1.6% and the Nasdaq on the back of gains by AI companies ended Friday with 0.44% in the green and accelerated the week with 2.03%. 

Prospects for this coming week.

South Africa awaits the news conference of the Monetary Policy Committee (MPC) of the Reserve Bank on a lowering of the Repo rate by at least 25 basis points. 

On global financial apart from the announcement by the Fed on Wednesday awaits the release of the UK’s unemployment rate for July on Tuesday and the US its retail sales. The UK will also release its inflation rate for August on Wednesday, and the Bank of England (BoE) will announce its interest rate decision on Thursday. The EU will publish the Euro-area’s inflation rate for August on Wednesday.

Chris Harmse is the consulting economist of Sequoia Capital Management and a senior lecturer at Stadio Higher Education. 

*** The views expressed here do not necessarily represent those of Independent Media or IOL.

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