Financial markets in SA improve despite lingering geo-political uncertainties
PRETORIA – Despite the uncertainty around the finalising of a trade deal between the US and China and the Hong Kong unrest that brought volatility on global equity markets last week, financial markets in South Africa performed stronger.
The domestic SAA uncertainty, the lower inflation rate and the decision by the Monetary Policy Committee (MPC) not to decrease the repo rate brought some stability and even positive sentiment to the South African equity markets, contributed to a stronger rand exchange rate and led to a recovery in bond rates.
The SAA saga has rather brought some support to financial markets as it seems that they evaluate a strong stance from the South African government that they will not bail out the airline to bridge increased wages.
The decision by the MPC also suggests that the Reserve Bank will continue to be vigilant on the risks around the rand next year associated with a possible downgrading to junk by Moody’s in February.
Investors reacted positive on the decision on Thursday, as share prices started to recover and the R186 dipped in under 8.34 percent, down from 8.50 percent at the beginning of the week.
On global markets it seems that a trade deal between the US and China remains a mixed picture. Chinese Vice-Premier Liu He has invited Robert Lighthizer to Beijing for further talks later this month, as Washington may postpone new tariffs scheduled for December, even if there’s no deal by then, the South China Morning Post reported. On the other side of the coin, President Donald Trump is likely to sign into law a bill supporting Hong Kong’s protesters.
This move will surely anger China.
These back and forward moves by the two biggest economies on the globe had led to much volatility on world markets. US equities and European stocks advanced on Friday as investors digested the latest headlines on the trade dispute between America and China.
The rand exchange rate traded in a narrow band last week.
The currency had tested the lower R14 .60/$ level a few times during the week, just to trade again sometimes around R14.80/$.
All in all, it seems that the rand is on the brink of moving stronger and just await the outcome of the S&P rating of South Africa’s long-term currency stance.
The rand ended the week on R14.70/$, the same level as the previous Friday.
Against the pound the rand gained another 12 cents to close Friday on R18.88 and was also stronger against the Euro at R16.23.
On the JSE the ALSI once again traded nervously and volatile during the week. The index at one stage during the middle of last week traded well above the 57 300 level, just to lose more than 1.2 percent again on Thursday, but recovered strongly to end Friday on 56 760.
This is 705 points (1.3 percent) higher than the previous Friday’s close. Financials was flat over the week, the Industrial 25 Index gained 2.6 percent and Resources traded higher by 0.6 percent. On the capital market bond rates, after increasing nervously during the beginning of the week, had recovered slightly after the MPC’s decision not to change the repo rate. The Government R186 bond ended Friday on 8.39 percent, the same level as the previous week.
This coming week all eyes will be on the release of the RMB/BER business confidence index for Q3. The index in South Africa plunged to 21 in Q3 2019, its lowest level since Q2 1999.It is expected that the index had dropped to levels lower than 20 during Q3, pointing towards an expected further downward trend in economic activity. Statistics SA will announce the latest producer price index (PPI) on Thursday.
The latest balance of trade data, money supply numbers and private sector credit figures will also be published. Globally, the US will release its home sales data, personal income and spending figures and durable goods orders for October. The US will announce its second estimate of its GDP growth rate during Q3.
Germany will release its latest economic business climate index for November and unemployment rate for October. The EU will announce its business, consumer, economic sentiment and industrial sentiment indices for November. France and Canada will also announce their GDP growth rates for Q3.
Dr Chris Harmse is chief economist at Rebalance Fund Managers.