Politics and economic data - main factors for financial market volatility
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In a week of much political changes in South Africa, as well as expectations towards economic data, and the fall in the prices for precious metals, share prices on the JSE moved much, and remained volatile, while the rand depreciated strongly, on Friday.
The main two factors were the resignation of Tito Mboweni as Minister of Finance, and the appointment of the new Minister of Finance, Enoch Godongwana, in his place and the release of the latest US job data, on Friday.
The appointment of Godongwana as the new minister of finance will lead to some criticism, given his background as the deputy minister of economic development in 2012 and his then resignation after allegations of fraud. His resignation was due to outrage in government circles about his involvement in a company that allegedly defrauded clothing factory workers of R100 million of their pension fund money. Financial markets are thus to some extent sceptical towards his appointment.
The rand lost around 40 cents against the dollar over the 24-hour period after his appointment and traded late on Friday evening around R14.63 to the dollar. Against the pound, the currency traded Friday alone, 21 cents weaker on R20.29 and lost 25c against the euro, to trade on R17.21. This after the currency experienced a strong recovery during the first four days of the week, with the Rand trading against the dollar at one time as strong as R14.29.
Godongwana is a stalwart figure in the ANC on economic policy. He is the head of the ANC’s economic transformation committee for more than a decade and was the chairman of the Development Bank of Southern Africa.
Godongwana is seen as one who frequently attempts to persuade his colleagues to make pragmatic and market-friendly decisions. Therefore, we must believe that the new Minister of Finance will not play party politics by favouring the civil servants with unnecessary salary increases, the nationalisation of the SA Reserve Bank and further large bailouts for the state-owned enterprises.
Time will tell and the financial markets and domestic and global investors will watch him closely. Dare we say that he will not abuse the golden super cycle tax income to be received from the mining and agricultural booming exports.
On the financial markets, the prices for gold and platinum decreased during the week, as worries that the Delta variant of Covid-19 virus will continue to haunt countries in Asia and Europe. The gold price tumbled by more than $60 (R878) to $1762 and the platinum price by $64 to $975 per ounce. Investors rather turned towards the dollar and US shares on Wall Street. This positive sentiment towards the US was strengthened, on Friday, after the release of better than expected job data. The US unemployment rate also came in lower than expected.
Last week, on the JSE, the all share index traded down by 0.4 percent, whereas the industrial 25 index shed 1.4 percent, after a big sell-off of heavy weight Naspers, as well as the stronger rand, for most of the week.
Financials gained 5.1 percent, mostly due to the initial appreciation of the currency and listed property trade higher by 2.6 percent. The Resources 10 index lost 1.9 percent. On the capital markets investors played it safe and sold some of their bond holdings. The R186 short term bond drooped by 0.5 percent as the rate increased from 7.34 percent to 7.38 percent.
This coming week investors and analysts will concentrate on the release of South Africa’s manufacturing and mining production data for June.
Sacci will also publish its latest business confidence index.
On global markets, all attention will be on the announcement of the US latest inflation rate for July, as well as the weekly jobless data, on Thursday.
Germany will release its trade balance and the UK will publish its preliminary gross domestic product growth number for quarter two 2012 and trade balance for June.
Chris Harmse is the economist of CH Economics.
BUSINESS REPORT ONLINE