Equity markets uncertain, but rand and bonds recover
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By Chris Harmse
FINANCIAL markets across the world remain volatile and uncertain as US Treasuries continue to rise. The long-awaited approval of the $1.9 trillion ( about R28.4 trl) recovery stimulation programme of US President Joe Biden by the Senate and the printing of the first relief queues for citizens on Friday boosted US equities.
Wall Street opened strongly with the Dow Jones gaining 0.5 percent and traded at a new record high of 32 648 points for the first time above the 32 600 level. Despite this strong buying of US equities, the 10-year US treasury yield rate in the US hit 1.6 percent, the highest in more than three years.
It sparked a further round of a sell-off of tech shares in the US and led to a fresh round of bond rate volatility around the world and risk asset selling in emerging economies. The disappointing speed of the Covid-19 virus vaccinations over the world, with maybe the exception in the US, also makes risk investors nervous.
On Friday, the JSE was a blood bath. Part of the sell-off was due to the news that China’s top financial regulators see Tencent (Naspers affiliate in China) as the next target for increased supervision after the clampdown on Jack Ma’s Ant Group Co.
Tencent Holdings has been put on notice. In reaction, Naspers’s share prices had dropped by more than 5.5 percent. This contributed to a sharp fall in most share indices on the JSE during the last trading day of the week. The result was that the All Share Index to end the week 62 points, or 0.1 percent, down.
The Resource 10 Index traded lower by 1.13 percent and Industrials lost -0.15 percent. The stronger rand last week helped Financials to continue to recover and the Fin15 advanced by 1.28 percent. Listed property share traded flat as the index remains on 294.
The sell-off of shares on the JSE on Friday came after equity prices, bonds and the rand recovered strongly last Wednesday and Thursday in reaction to the better than expected economic growth figures for the country during 2020 and the fourth quarter.
Many economists expected that the South African economy would shrink by at least 8 to 9 percent in 2020. Even government and the Reserve Bank in earlier forecasts expected the same. Treasury, in its February budget, however, had it spot on in forecasting the 2020 growth rate of 7.1 percent. Is this a surprise or could one expect it?
Over the fourth quarter, the economy had grown by 6.3%, almost one percent higher than what the market expected. With the exception of the lockdown over the December holidays that had a devastating effect on tourism, cigarette and alcohol sales, most industries, especially manufacturing (21.2 percent) trade, catering and accommodation (9.8percent) and transport and storage(6.7 percent) accelerated in the fourth quarter.
Economist now start to forecast that the economy indeed can grow at 3.3 percent, as set by Treasury in its National budget, or even may accelerate at a rate exceeding four percent.
The growth data contributed much to the rand recovering against major currencies, after two weeks of uncertainty and depreciation. At the close on Friday, the rand traded at R15.01 to the dollar. This is 34 cents stronger than the R15.35 to the Dollar close the previous Friday. Against the Pound, the currency improved to R20.82 from R21.21 the previous week. And against the Euro, the Rand gained 40 cents and traded Friday on R17.89.
This coming week all eyes will be on the release of South Africa’s consumer confidence index for the first quarter on Tuesday. Stats SA will release the retail sales data for January on Wednesday. It is expected that retail sales increased by 0.7 percent on the December figure.
Globally, analysts and investors will await the retail numbers for February of the US and most of the other developed countries. US manufacturing data will be released on Tuesday and various housing sales figures will also be announced.
The important event of the week however will be the Federal Reserve meeting with its interest rate decision on Wednesday. US Treasury rates will react strongly to this decision. The Bank of England will also announce its interest rate decision on Thursday. Many developed countries, like Japan, the EU, and Canada will also release inflation rate figures.
Dr Chris Harmse is an economist at S3 Capital Financial Planners.
*The views expressed here are not necessarily those of IOL or of title sites
BUSINESS REPORT ONLINE