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China’s influence on local markets is growing

Dr Chris Harmse, economic consultant, CH Economics. Photo: File

Dr Chris Harmse, economic consultant, CH Economics. Photo: File

Published Oct 11, 2021


FINANCIAL markets across the board remain nervous and uncertain and tend to be volatile as they await clear indication on US tapering by the us Federal Reserve, US non-farm payrolls and news from China.

Two of China’s biggest listed property companies, namely the Evergrande property group that became the world’s most indebted real estate group, and another Chinese property developer Hopson were suspended from trading on the Hong Kong stock exchange.

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The sharp increase in energy prices also put pressure on share and bond markets as renewed fears about inflation have hit bond yield hard across the world. Fears for stagflation, namely lower growth and accelerating inflation also feeds fear and uncertainty.

In the US, another storm developed as US federal debt default reached panic stations. Treasury Secretary Janet Yellen had faced a daunting task to convince the unsympathetic Republican lawmakers to raise the US national debt limit, which now stands at $28.5 trillion. Luckily they agreed on Thursday, avoiding a possible US financial system to collapse.

In reaction most equity markets, commodity prices, bond rates and exchange rates of emerging markets started to recover on Thursday and Friday.

The gold price bounced back from lows earlier in the week to trade on Friday afternoon at $1 758 per ounce, the same level as the previous Friday.

Platinum improved by almost $60 to close at $1 027. Brent oil reached its highest level in three years trading above $83 per barrel.

Share prices on the JSE had a shaky start last week, given US federal debt problems and the property scandal in ChiNa, with most indices continuing to move lower as was the case the previous week.

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From Thursday, however, except for financial shares, most equities started to turn around. On Friday, the ALSI closed on 65 243 or 2.5 percent up for the week. Industrials gained 1.8 percent, whilst the Resource 10 index recovered by 7.5 percent on the previous Friday.

The Financial 15 index lost 3.8 percent, as labour unrest and intended strikes by Cosatu and other labour unions had dampened domestic investment sentiment. On the capital market, the short duration Treasury benchmark the R186 traded up by 3.3 percent for the week on Friday and stood on 7.89 percent.

On Friday evening, the US released its non-farm payrolls for September. The US economy added only a meagre 194 000 new jobs during the month. This is the lowest so far this year and well below the forecasted 500 000.

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In reaction, US equities traded uncertainly on Friday evening in fear of stagflation. The Bureau of Labor Statistics said in the release of the job report: “Recent employment changes are challenging to interpret, as pandemic-related staffing fluctuations in public and private education have distorted the normal seasonal hiring and lay-off patterns,”

This coming week investors and analysts will concentrate on the latest mining production data as well as the retail sales for August that will be released by StatsSA on Tuesday.

On global markets, the release of US FOMC meeting minutes on Wednesday will attract most attention. The announcement of the US inflation rate for September also on Wednesday, as well as its retail sales for September on Thursday will also be of importance. The Opec monthly report will be published on Wednesday.

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Dr Chris Harmse, economic consultant, CH Economics

*The views expressed here are not necessarily those of IOL or title sites