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Covid-19 third wave, geopolitics weigh on markets

Chris Harmse is an economist of CH Economics. Photo: Supplied

Chris Harmse is an economist of CH Economics. Photo: Supplied

Published Jul 5, 2021


The uncertainty of the possible negative economic effects of the third wave of the Covid-19 virus in South Africa after President Cyril Ramaphosa recently announced level 4 of lockdown had its toll on equities on the JSE, the rand and bond rates.

The sharp decrease in gold and platinum prices as the dollar strengthened also contributed to uncertainty on financial markets.

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Despite the initial positive reaction on the equity, bond and exchange rate markets, after the verdict of the constitutional court over former president Jacob Zuma’s jail sentence, the worry around possible clashes between the police and supporters of Zuma had negative effects on share prices on the JSE as well as on the rand.

On Thursday gunshots were fired as a motorcade left Eshowe towards the Nkandla residence of Zuma in northern KwaZulu-Natal. Supporters claim that they will not allow the former president to report for jail sentence. The seriousness of a possible violence situation at Nkandla has forced the ANC to postpone his scheduled executive meeting to be held over the weekend.

In the US the job-data for June were mixed and contributed to uncertainty on equity markets of emerging economies. The US economy added 850 000 new jobs as hiring of job seekers that returned to the labour market was better than expected. Despite this sharp increase in hiring of previously Covid-19 unemployment persons, the US unemployment rate increased slightly to 5.9 percent up from 5.8 percent the previous month.

US shares edged higher to record levels for all three the important indices, on the job data and further economic optimism that the vaccines can counter the new more highly infectious delta coronavirus strain. These developments increased the risk towards emerging markets and just after the release of the jobs data shares on the JSE on Friday were sold off sharply.

The rand remains under pressure as the currency lost another 20 cents against the dollar last week, trading at levels of around R14.38 to the dollar, its weakest over the past five weeks. On the JSE share prices remain volatile and the market gave most of its gains over the first part of the week back on Friday and most indices ended the week flat.

The all share index ended the week 108 points (0.167 percent) higher. Industrials (0.5 percent) and Resources (0.3 percent) also were only marginally stronger. Financials came under pressure as the Fin5 index traded down by 0.8 percent.

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This coming week investors and analysts will evaluate the clash between the Zuma supporters and the police as well as the reaction of the ANC. The numbers around new Covid-19 infections and a possible extension of the Covid-19 level four restrictions this coming weekend will also determine market sentiment.

On Wednesday motorists will also pay a sharp increase in fuel prices. The HIS Market Purchases Managers Index for June will be released today. The South African Chamber of Commerce and Industry (Sacci) will publish its business confidence index figures on Thursday.

On global markets, investors will keep their eyes on the release of the various purchasing managers’ index (PMI) indices of most developed economies. The European Union and most member countries will release their retail data during the week on Tuesday. In the US the Federal Reserve Open Market Committee will publish the latest Federal reserve meetings minutes on Wednesday.

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Chris Harmse is an economist of CH Economics.

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


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