Most equity indices on the JSE moved weaker last week. The US Dollar remained strong and, helped by lower metal prices for gold and platinum, the Rand to Dollar exchange rate traded at levels around R19.
The State of the Nation (Sona) address by President Cyril Ramaphosa had a minor negative effect on South Africa’s, equity, exchange rate and the bond markets. The All Share Index (ALSI) lost 0.5% on Friday and 1.0% over the whole week. The ALSI total return index for the year till Thursday, February 8, is down by 3.7%.
The Resource 10 index lost 2.0% on Friday alone as the prices for gold, platinum and palladium tumbled on Friday.
The All Share Industrials, however, traded up by 0.2% on Friday, gained 1.5% over past week and its total return index is now 2.1% higher since the beginning of the year.
Financial shares (FIN15) as a better proxy for the effects of domestic geopolitical events and the Rand exchange rate, traded 0.1% lower on Friday. The index is now down by 4.3% for the year. Equity markets wait for the National Budget to be delivered by the Minister of Finance in a week’s time.
The Rand/Dollar exchange could not recover last week after the unexpected sharp increase in US non-farm payments the previous Friday. Foreign exchange markets discount a stronger US Dollar as the sudden sharp increase of 333 000 new jobs in January and a US unemployment rate remaining on 3.7% calls for the US Federal Reserve not to lower rates at its March 2024 meeting. The Rand/Dollar traded Friday above R19.00/$ (R19.04%/$).
On the capital market, the All-Bond Index (ALBI) was flat during the week and is now only 0.4% higher for the year-to-date.
In the US, equity markets continue to move bullish. This despite the expectations that the Fed will take longer to lower its Bank rate.
The Dow Jones Industrial Index traded 0.32% stronger last week and is already 2.54% higher for the year-to-date. The S&P 500 index remains resilient as it traded 1.4% higher last week and has increased by 6.0% since the beginning of the year. The Nasdaq tech index also remained strong gaining 2.4% last week and is 8.3% higher for the year-to-date.
Adjusted US inflation data released last week showed that the CPI rate remained the same at the end of last year as initially was forecast and analysts now discount that the inflation rate will eventually come down sharply from the middle of the year.
Expectations increased that the Fed would start to lower rates in May or June. US inflation figures for January figures due this coming Tuesday are expected to indicate that the monthly core inflation increased by 0.3% for a third straight month, representing a slight pickup on a three-month annualised basis. This implies a marginal lower 3.7% year-on-year, against the 3.8% in December 2023. This figure will support the view of the Fed that it will not change its bank rate at its next meeting in March.
This coming week local markets will await the announcement by Statistics South Africa of the gold and mining production figures on Tuesday and the retail sales data December on Wednesday. A decrease of -0.8% on the previous year is expected and the same as was recorded in November 2023.
On global markets, the announcement of the US inflation rate data on Tuesday will dominate the Rand, share prices and bond rates for the coming week.
The release of the Eurozone’s gross domestic product (GDP) second estimate for Quarter Four (Q4) 2023, Great Britain’s unemployment rate, inflation rate data and GDP numbers and the Q4 growth rate for Japan, during the week will also give direction to global financial markets.
Chris Harmse is the consulting economist of Sequoia Capital Management