Equity markets and the rand turned bullish again
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By Dr Chris Harmse
STOCK prices on the JSE turned around sharply last week to the positive side, on the back of a surge in commodity prices and a stronger rand.
The decrease in US long-term treasuries to lower than 1.6 percent, the strong increase in the IHS Markit South Africa PMI, the jump in the business confidence index and the suspension of the ANC’s secretary-general Ace Magashule, also contributed to markets to recover strongly, especially last Thursday and Friday. The rand reached its strongest level this year.
The Markit PMI index improved from 50.3 in March 2021 to 53.7 in April as new business and output grew strongly to multi-year highs. Customer demand of businesses are also recovering, and export demand improves as global markets recovered from the Covid-19 pandemic.
In reaction, firms expanded their staff levels for the first time in 18 months. The business confidence index for South Africa improved sharply from 26.6 percent in February to 31.3 percent in March 2021.
The All-Share Index (ALSI) on the JSE broke easily back again through the 68 000 point level on Thursday and closed Friday afternoon on 68 520. This is an increase of 2.4 percent for the week and only 179 points away from the record week close of 68 699 on Friday, April 16.
The ALSI already has increased by 9 111 points, or 15.3 percent, from its opening level of 59 409 at the beginning of the year. The strong rally in equities was led by the surge in resources. The Resources 10 index ended the week 4.2 percent higher on a new record close for this year of 71 474 points, gaining 24 percent year-to-date.
Financials and property continue to recover on the back of the stronger rand, while Industrials gained 1 percent over the week.
The rand recovered strongly last Thursday, due to geo-political improved sentiment towards South Africa, the surge in the prices for metals especially gold at $66 an ounce (R928) to $1 834 and platinum at $45 an ounce to $1 253 per ounce and the weaker dollar.
Against the dollar, the currency gained 44 cents last week to its strongest level this year of R14.06on Friday. Against the pound, the currency improved 35c last week to R19.68 and against the euro, the rand also gained 35c to close Friday on R17.09.
In reaction to the improved domestic economic and political climate, bonds moved stronger last week as the R186 treasury rate came down from 7.39 percent the previous Friday to 7.27 percent.
In the US, the economy only added 266 000 new jobs in April, against the record employment growth of 770 000 recorded for March. Unemployment also disappointed as the jobless rate increased to 6.1 percent in April, from 6 percent the previous month.
Economists had expected a sharp increase in new jobs as the pandemic restrictions are relaxed and the Biden administration’s trillions of dollars new stimulus package kicked in when $1 400 was paid directly to each eligible US household.
This coming week, Statistics SA will release the manufacturing production data for March on Tuesday and the mining production numbers for April on Thursday. Globally, analysts and investors will await the UK’s gross domestic product growth rate figure for first-quarter 2021 on Wednesday. Most developed markets will release their latest manufacturing and industrial production data. The US will publish its inflation rate number for April on Wednesday, as well as its latest retail sales on Friday.
Dr Chris Harmse is an economist at S3 Capital Financial Planners.
*The views expressed here are not necessarily those of IOL or of title sites