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Market consolidation: Is this the start of an economic recovery?

Most financial markets started to recover last week, with far less volatility and uncertainty than the previous few weeks. REUTERS/Henry Romero

Most financial markets started to recover last week, with far less volatility and uncertainty than the previous few weeks. REUTERS/Henry Romero

Published Apr 4, 2022

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Dr Chris Harmse

Most financial markets started to recover last week, with far less volatility and uncertainty than the previous few weeks. A possible working ceasefire agreement between Ukraine and Russia contributes to “normalisation” of equity, bond, and foreign exchange markets.

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Attempts by the US to recover oil supply in the light of sanctions against Russia saw a sharp decrease in global oil prices.

Brent oil traded on Friday afternoon at $107 (R1 563), against $117 the previous week.

The weaker oil price and higher demand for more risky assets like shares, pushed other commodity prices down. Gold lost $48 during the week (trading at $1 923 per ounce), and platinum traded at the close on Friday $28 down for the week on $986 per ounce.

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The strong movement on gold as a haven, as well as the reaction on South Africa increasing interest rates the previous week, had led to the rand appreciating strongly over the past two weeks.

The currency traded at once stage at levels stronger than R14.47/$ at the beginning of last week. It, however, lost ground again since last Thursday and at the close on Friday, traded weaker on R14.57/$ – the same level as the previous week’s close. In the US, equity markets recovered for the third consecutive week.

The Dow Jones industrial index is now only 4.2 percent down for the year, whereas at the end of February the index was down 8.3 percent since the beginning of the year.

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The S&P 500 gained 5.4 percent during March, and is now 4.6 percent down for the year against 10 percent a month ago. The increase in US non-farm payrolls by 431 000 new jobs during March also increased positive sentiment, as it shows that the supply side of the US economy is picking up.

The mixed economic developments last week, namely the shocking figure released by Stats SA that South Africa’s unemployment rate deteriorated further to 35.3 percent during Q4 2021 against 34.9 percent in Q3 2021, and the announcement by the minister of finance last Thursday that the government would lower the fuel levy by 150 cents per litre in April, led to some nervousness on equity and bond markets. But overall financial markets ended the week and especially the quarter much stronger.

On the JSE, the ALSI closed on Friday on 75 907 or 2.2 percent up on the previous Friday. The index gained 2.4 percent during the first quarter of the year, and mostly contributed towards strong returns on domestic equity and balanced portfolios since the beginning of the year.

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The financial sector continues to recover strongly as the Financial15 Index closed the week 3.6 percent higher than the previous Friday, and gained a massive 19.5 percent in the first quarter.

Despite weaker commodity prices last week, the Resources 10 Index closed the week 0.3 percent higher and gained 15.9 percent during Q1 2022. Industrial shares continue their see-saw movements, closing Friday marginally higher by a mere 0.1 percent but remains 14.7 percent down for Q1, 2022.

Listed property shares recovered their losses of the previous few weeks, and traded on Friday 0.6 percent higher. This sector, however, remains under pressure and has lost 2.2 percent since the beginning of the year.

This coming week, S&P Global Purchasing Managers Index (PMI) for March is set to be released.

South Africa’s level of foreign reserves is to be announced by the Reserve Bank on Thursday.

SACCI will release its latest business confidence index value on Friday.

On the global markets, the various PMIs for most countries are set to be released. The US and Canada is due to publish their balance of trade numbers for February. US gas, oil and gasoline stock and reserves are set to be released on Wednesday that will give direction towards oil and gas prices.

The release of the Federal Reserve’s Federal Open Market Committee meeting minutes of last month also on Wednesday is expected to draw the most attention this week.

Dr Harmse is the economist at CH Economics and lecturer at the School of Commerce at Stadio Multiversity

BUSINESS REPORT

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