Market Report: Financial markets surprisingly strong
JOHANNESBURG – Financial markets in South Africa remain strong despite economic woes and the second wave of the Covid-19 virus in the US and the climbing numbers of intake of infections in South African hospitals.
Equity prices, especially resources and industrial shares, continue their upward movement that started at the beginning of April.
The all share index closed on Friday on 55 417 points. This is now only 1 667 points (2.9 percent) away from its opening level of 57 084 at the beginning of the year and 1.6 percent higher than the previous Friday close.
The Resources 10 index on Friday traded 3 224 points, or 5.9 percent, higher than the January 1 level. The Index is now on a record level for the year, beating the 50 891 highest level of January 20 with 3.1 percent.
The Industrial 25 index closed on Friday on 76 314. This is 7 011 points, or 10.1 percent, higher than the start of 2020.
Both these two indices benefited by the weak rand exchange rate.
The truer indicator of the poor domestic economic numbers is the financial index. The Financial 15 index traded Friday on 10 474 This is 5201, or 33 percent, points lower than its opening level of 15 675 at the beginning of the year.
As the rand appreciated strongly last week, financials started to move higher again gaining 3.1 percent over the week.
This despite the shocking number of -49 percent decrease in manufacturing production during April, the first month of the lock down and investors became jittery on the deepening of the South African recession.
The rand exchange rate returned to stronger levels last week, as foreign appetite for resources and South African Bonds had led to an inflow of foreign capital.
The rand against the dollar traded at the close on Friday on R16.75. This is 31 cents stronger than the R17.06 the previous Friday.
Against the pound the currency had strengthened by 7 cents to close on R21.20. Against the euro the rand gained 23 cents for the week and traded under the R19:00 level on R18.93.
On the bond market, rates also improved. The R186 treasury closed Friday on 7.75 percent. This the same level of the previous week, after the bond had dwindled to 7.90 percent earlier in the week as risk evasion from emerging markets and the weaker rand had led to a sell-off of treasuries.
On the global front the volatility in equity markets continued as reports everyday send different signals to equity and bond markets. In the US the high tech loaded Nasdaq index reached new record levels on Monday and Tuesday as market sentiment turned positive that the global and US economy will recover strongly.
The rising infected record daily numbers of Covid-19 infections in the US again dampened markets on Wednesday and Thursday.
The lower -than-expected US initial jobless claims of less than R1.4 million as well as hope that emerged on Friday of a possible effective treatment of the virus saw US equities recovering sharply on Friday as the Dow industrial index gained 1.62 percent at the opening.
The S&P500 index was up by 0.3 percent and the Nasdaq traded near a record level again higher than 10 500 points. Stocks in China and Europe also moved volatile but made up most of their losses at the end of last week.
This coming week investors’ attention shift to the release of the Mining and Gold Mining production data for April. Given the same obstacles s the manufacturing sector it is expected that mining production had decreased by 35 percent as the first month of the lock down broad the sector almost to a standstill.
On Wednesday, Statistics SA will release the inflation rate number for May. It is expected that the Consumer Price Index had increased by 2.7 percent against the 3 percent in April.
This figure will give a clearer indication on the possibility of another repo rate cut by the Monetary Policy Committee when they meet next week. On Thursday the release of the producer Inflation rate (PPI) and building permits in may will also draw attention.
On Global markets investors are looking out for the release of the gross domestic product economic growth rate of China that will be release on Thursday. Most developed market’s inflation rates and manufacturing data for June will also be released this coming week.
Dr Chris Harmse: Economist and Chief Investment officer of Rebalance Fund Managers.