Equities volatility order of the day worldwide

By Dr Chris Harmse Time of article published Jul 20, 2020

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JOHANNESBURG - Contrasting news and economic data across the globe continued to impose a volatile movement in share prices on world markets last week.

Reports of a renewed second wave of Covid-19 infections in some countries and poor economic data earlier in the week, was followed by the news of a possible vaccine and better than expected other economic numbers.

This contributed to an almost daily see-saw movement in equity prices, the dollar exchange rate and treasury rates.

Share markets, however, were improving despite the volatile movements.

On Wall Street, the S&P 500 index traded early on Friday evening at 3218 points. This was 2 percent higher than the previous week close and about 3 percent over the last month.

The Nasdaq, which reached record levels on a few occasions over the last two weeks, however, experienced a two-day slide, the first since mid-May.

The drop in consumer sentiment in the US also put that country’s equities under uncertainty.

Data showing that Chinese economy rebounded to a growth rate of 3.2 percent during the second quarter, up from a 6.8 percent negative growth the previous quarter, helped more positive sentiment especially towards emerging markets, as well as prices for resources. The expectation was that the world’s second largest economy would have grown by 2.5 percent.

Prices for platinum and palladium gained strongly. Platinum ended last week at $850 (R14138) an ounce, or $20 higher than the previous Friday, while the gold price traded $7 higher at $1811 an ounce

In South Africa, the two main economic indicators released last week were better than expected. The mining production number for April had shrunk by 29 percengt and was better than the expected 35 decline. It is expected that the sharp increase in the prices for metals and other resources will see this figure improve sharply in months to come.

The inflation rate was 2.7 percent in May, lower than the 3 percent of the previous month. It is now the lowest increase in the CPI over the last decade. Sentiment is now bullish that the monetary policy committee (MPC) will lower the repo rate further at their meeting this week.

On the back of the better economic growth rate in China, higher prices for resources and foreign buying of South African equities and bonds, the JSE all share index had another positive week despite being volatile. The index ended Friday on 55911.8 points, or 0.9 percent higher than the previous week.

Resources continued to shine with the resource 10 index up 4 percent. Industrials had a poor Thursday as domestic retailers recorded a sharp drop. The industrial 25 ended the week 1.9 percent lower. A stronger rand and lower inflation rate helped financials to have a second consecutive positive week, ending 1.3 percent higher

The rand continued to gain. The currency traded at R16.66 to the dollar at 5pm on Friday. This was 11 cents stronger than the previous Friday.

Against the pound, the rand firmed by 29c to R20.91, but was 12c weaker against the euro at R19.05.

On the bond market, rates also continued to improve. The R186 treasury closed Friday on 7.58 percent, or 2.1 percent, lower than the previous week.

This week investors will await the announcement of the MPC on interest rates on Thursday. It is expected that the MPC will lower the rate.

The release of South Africa’s retail sales for April on Wednesday will also be important. It is expected that the figure would have shrunk by 6 percent.

On the global markets, investors are looking out for the release of the various purchasing managers indices of various countries.

The US crude oil stock, house prices and jobless claims data will also have an influence on market sentiment.

Dr Chris Harmse: Economist and chief investment officer at Rebalance Fund Managers.


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