Equities across the globe drop sharply, but JSE rallies
EQUITY prices across the globe dropped sharply in volatile markets last week due to uncertainties around prospects for economic recovery post-Covid-19 vaccine rollouts, as well as the much lower earnings of listed companies.
Major commodities like gold and oil, however, tended to recover over optimism on a strong economic recovery in East Asia.
In the US, the Dow Jones industrial avarage index came under pressure amid fears that sharp gains in a batch of small, heavily shorted companies could force hedge funds to liquidate profitable long positions in other equities. Over the week the Dow lost about 1.7 percent.
The US economy, which fared better than expected, highlighted by the weekly unemployment claims that came in under 900 000, the first time in weeks, supported positive sentiment for stocks in the US over the next few weeks.
On the JSE, volatility also was the order of the day, mostly due to a much unstable rand. The all share index lost 500 points (2.3 percent) over the week as stocks were sold down strongly on Friday alone when the index was down by 735 points, or 1.2 percent. For the month of January the index gained 5.1 percent.
The uncertainty surrounding the Covid-19 vaccine rollout programme in South Africa, as well as various state capture claims made at the Zondo Commission and court cases involving former president Jacob Zuma and Ace Magashule within the next two weeks, are weighing on the minds of investors.
Gold and platinum prices also lost momentum last week.
Owing to a stronger rand on Friday, financial shares ended the week flat as the Fin15 index gained only 4 points (0.03 percent) to 11 689 points. For the month of January the index, however, lost 3.2 percent.
Resources moved negative for the third consecutive week as the Resources 10 index lost a further 3.7 percent and is now only 4.8 percent up since the beginning of the year after it had traded 11 percent higher after the first two weeks of the year.
Industrial shares also lost steam last week as the Indi15 index traded down by 2.4 percent. The index, however, remains 8.4 percent higher during January.
Property remains uncertain as the listed property index rose just 0.8 percent last week but still ended 3.6 percent lower for the month.
The rand was again volatile last week, ranging from R15.32 during the middle of the week to R15.02 on Friday. The currency, however, depreciated by 32 cents against the dollar for the month, much weaker than the R14.68 to the greenback on December 31, 2020.
Against the pound, the rand traded down 5c last week and 83c lower for the month on R20.60.
Against the euro, the local currency moved somewhat stronger than a week earlier on R18.24, but still 43c weaker than the beginning of the year.
This week, all eyes will be on the possible rollout of the first Covid-19 vaccine in South Africa.
Data on new vehicle salers for January will be out today. The HIS Markit and ABSA’s manufacturing Purchasers Managers Index for January will be released on Wednesday. The SA Reserve Bank will publish the country’s level of foreign reserves on Friday.
Globally, investors will look out for the announcement of the latest US Job numbers during the end of the week. US unemployment rate and new jobless claims will set the tone for equity markets at the end of the week and for the beginning of the new month.
It is expected that the US unemployment rate inched up for the second consecutive month from 6.7 percent in December to 6.8 percent in January.
The manufacturing PMI’s for most countries will also be announced. The EU will release its gross domestic product growth rate for 2020 fourth quarter and for the year, tomorrow.
The Bank of England will announce its latest interest rate decision on Thursday.
Dr Chris Harmse is an economist of CH Economics