Downward correction fears fuel negative sentiment
The sudden increase in infections and deaths reported in the US, China and Europe led to a flight of investors from risky assets as the second wave of case may halt the opening of economies.
In the US, the state of Texas closed bars again on Friday.
Florida and other “Sun Belt” states recorded an alarming growing number of new cases as their governors had reopened businesses.
Positive cases worldwide stood at around 9.7million with deaths approaching half a million.
Equity markets for most of last week traded in the negative with US stocks losses rising to more than 4 percent. This despite data that showed that US consumer spending had surged by a record in May as the relief payments from the government were utilised.
A fear of yet another downward correction on share markets, as happened in March, also contributed towards negative market sentiment.
At the close of markets in South Africa on Friday, the Dow Jones industrial index was down by 2.3percent and the S&P500 traded off by 2.03percent. The Nasdaq that reached a new record level above the 10000 points earlier in the week had tumbled more than 4percent since the previous Friday.
The “bad news” around South Africa’s supplementary budget delivered by Finance Minister Tito Mboweni last Wednesday was largely expected. The projected debt to GDP ratio of 82percent was discounted by markets at the beginning of the week.
The rand and bond rates moved rather sideways.
The currency at the close of the JSE on Friday traded Friday at R17.34 to the dollar, unchanged from the previous week. Against the pound, the rand was 5cents stronger on R21.36 and only 3c weaker against the euro on R19.42.
The R186 2030 bond traded 9 points stronger at 7.65percent. This indicates that foreign investment sentiment against the country remains cautious.
The increase in the unemployment rate during the first quarter from 29.1percent to 30.1percent was lower than expected. The indication that this figure may rise to 50percent during the second quarter becomes gained traction.
The inflation rate for April was released by StatsSA last week, indicating the growth in the new adjusted CPI basket was a low 3percent, increasing sentiment that another drop in the repo rate in July was likely.
On the JSE, most equities had an up and down week but ended the week more or less flat.
Financial and banking shares, as a proxy for domestic market sentiment, continued to move downwards. The FINI15 index traded lower than 10000 points at the close on Friday (9991). This was now 35percent lower than the 152934 on January 14.
The all share index closed Friday on 53648.05 points, or 1.1percent down from the previous week.
Industrial shares traded down by only 0.5percent, while resources gained 1.1percent.
Listed property index traded lower by 3.6percent.
This week investors will concentrate mostly on the release of South Africa’s gross domestic product numbers by StatsSA today. It is expected that the economy has contracted by by 3.5percent during the first three months of the year, as the lockdown was only introduced at the end of March.
SACCI will publish its latest business confidence index for May, also today. It is focussed that the index improved somewhat to 83 from 77 in April.
Absa’s manufacturing PMI and total new vehicle sales data for June will be announced on Wednesday.
Globally, the release of the latest jobs data for the US on Thursday will set the sentiment for equity and bond markets. The US Federal Reserve’s latest minutes that will be released on Wednesday will also be of importance. Most Developed Market economies will announce their various PMI’s during the week.
Dr Chris Harmse: Economist and chief investment officer - Rebalance Fund Managers.