On the JSE, equities lost some steam on Friday as the rand exchange rate started to improve strongly and investors were nervous about President Cyril Ramaphosa’s second State of the Nation address (Sona) this year on Thursday.
Investors expect the president to at least address hard challenges such as the negative economic growth, the Eskom saga, the policy uncertainty over the SA Reserve Bank, the land issue, and the government’s standpoint on corruption given evidence at the Zondo Commission of Enquiry.
On the JSE, the FTSE/JSE All Share Index was down by 503points, or 0.86percent, on Friday. The index closed the week only 93points, or 0.3percent, higher.
Resources in particular were bearish on Friday on the back of the stronger rand. The Resources 10 index fell 1.44percent, pushing the week’s performance down and the index ended the week only 1.9percent up.
Gold shares ended the week 4.08percent higher, given the sharp increase in bullion to $1347 an ounce (R19925) at the close.
Globally, the S&P500 index on Wall Street traded on Friday a mere 10 points, or 0.25percent, higher for the week.
The MSCI emerging markets index gained less than a half-a-percent. The R186 government bond traded Friday on 8.36percent against 8.4percent the previous week.
Investors were staying on the sideline as they await the outcome of the Federal Open Market Commission (FOMC) meeting in the US this week. The Fed will announce its interest rate decision tomorrow.
It is expected that the FOMC may cut the US bank rate by 25 basis points, or at least it will be very dovish in its standpoint around rates.
Domestically, the release tomorrow by Statistics SA of the country’s inflation rate for May will also affect financial markets.
Given a possible cut in rates by the Fed, and depending on Sona, markets will start to anticipate a possible cut in the repo rate by the Reserve Bank as soon as at its next meeting in July.
Given a possible rate cut in the US, as well as the sharp increases in commodity prices - particularly gold and palladium - the rand exchange rate had appreciated strongly during last week, especially on Friday.
At the close of the JSE, the currency traded at R14.79 to the dollar.
This was almost 20cents stronger than the R14.96/$ of the previous Friday.
For the week, the rand gained 36c against the euro and traded on R16.60 and with 43c against pound sterling to end the week on R18.64.
Up to Friday the Central Energy Fund’s calculation of fuel prices, since the previous adjustment on May 30, had shown that the petrol price was over-recovered by 90c a litre and that of diesel by 70c a litre.
The stronger rand on Friday and the sideways movement in the Brent oil price about $62 a barrel are likely to increase the over-recovery the next few weeks.
A sharp decrease in fuel prices at the beginning of July, a cut in US rates and a stronger rand might contribute to the Monetary Policy Committee lowering the repo rate next month.
Chris Harmse is the chief economist at Rebalance Fund Managers.