US earnings, trade talks, are leading to market volatility
US company earnings were mixed with many performing weaker than expected. Companies like Amazon.com and Anheuser-Busch InBev, which recorded disappointing returns, kept a lid on positive sentiment on Wall Street.
Together with the uncertainty around Brexit, a possible election in the UK and the ongoing negotiations to reach a deal in the trade war between the US and China, financial markets across the world came under strain.
Although the S&P 500 index in the US finished Thursday just 0.5percent from its highest-ever close, stock prices remain volatile and nervous and were traded down especially last Thursday and Friday.
In Europe, food and beverage shares led decliners on the Stoxx Europe 600 index.
China had retaliated against US Vice-President Mike Pence’s criticism of human rights in Hong Kong, calling his speech “lies” and chiding him for ignoring American problems such as racism and wealth disparity.
This tit-for-tat ongoing diplomatic mud-slinging between the two superpowers continued to lead to a sell-off in risky assets of emerging countries.
The lower inflation rate and expectations for a further cut in the US bank rate by the Federal Reserve next week, and also a cut in the domestic repo rate by the Monetary Policy Committee of the Reserve Bank next month, had seen the rand exchange rate recovering further last week.
At the close of the JSE on Friday afternoon, the rand had traded at R14.56$. This is 61cents lower than the R15.17/$ at the beginning of October and 18c stronger than the R14.78/$ the previous week. Against the pound the rand had strengthened by 41c from R19.11 a week ago to R18.70 on Friday.
On the JSE the ALSI had lost 618points or 1.1percent during last week and ended the week on 55104. Financials were down by 0.6percent. Rand hedging shares and retail stock also took a hiding last week and the Industrial 25 index lost 2267 points or 3.2percent for the week. Higher world prices for commodities had boosted resources and the resource 10 index had increased by 1.5percent.
This week, all eyes will be on Minister Tito Mboweni’s medium term budget policy speech on Wednesday.
Investors will look out for the release of South Africa's M3 Money Supply and Private sector credit extension data for September. StatsSA will also release the unemployment rate for the third quarter.
The jobless rate had reached its worst level ever of 29percent during the second quarter of this year. It is expected that it may even be worse at 29.4percent. The Producer Price Inflation rate (PPI) for September will also be released.
Globally, the EU, France, Spain, Mexico and the US will release their GDP economic growth rates for the third quarter 2019. The US will also publish the important job data for September next Friday, while the Federal Reserve will announce its interest rate decision on Wednesday. The US Department of Labour will release the latest non-farm payrolls next Friday.
It is also expected that the Minister of Energy Affairs will announce this coming week the change in fuel prices on Wednesday, November 6.
Dr Chris Harmse: Economist and Chief Investment officer.