Expectations of lower US interest rates overshadow domestic woes
Expectations on US interest rates once again overshadowed domestic and global geopolitical uncertainties.
The announcement by Jerome Powell, the chairperson of the US Federal Reserve, last Tuesday that the Fed is ready to lower its bank rate in support of keeping the US economy from contracting towards a recession changed market sentiment quickly and sharply. This turned global stock markets around after a month of strong downward correction in light of one of the fiercest trade wars in history.
On Wall Street, the S&P 500 index, after losing 188points, or 6.4percent, since the beginning of May, rebounded strongly from Tuesday, and at the close last Thursday was up by 100 points, or 3.6percent. The news of lower-than-expected US non-farm payrolls for May on Friday supported a further strong surge in stock prices on Wall Street.
US employers added the lowest amount of workers in three months as non-farm payrolls rose by only 75000, down from a revised 224000 new jobs in April.
Although the unemployment rate remained at its 49-year low of 3.6percent last month, the average hourly earnings stabilised at 3.1percent from a year earlier, less than projected.
US equities had surged further on Friday, and at the opening the S&P 500 had gained another 1.3percent.
US treasuries also rallied as the 10-year yield tumbled on Friday just after the job data to 2.06percent. Domestically, a series of devastating economic data, as well as the Sarb saga, took its toll on the rand exchange rate.
The negative growth rate of -3.2percent during the first quarter, the higher-than-expected increases in fuel prices, as well as the announcement that the current account deficit of the balance of payments had worsened to more than R140billion in the first quarter, contributed to negative foreign market sentiment.
The rand lost 61cents (4.2percent) from R14.48/$ (just before the announcement of the poor economic growth) last Monday to R15.10/$ at one stage on Friday. Against the pound, the currency depreciated to R19.05 on Friday afternoon. This is 75c or 4.1percent weaker than last Monday’s close of R18.30. Against the euro, the rand weakened by 4.4percent last week to trade at R16.95.
Despite the shocking economic numbers and the Reserve Bank uncertainty, share prices on the JSE during last week had one of its biggest rallies this year. The FTSE/JSE All Share Index gained 2450 points, or 4.4percent, to close at 58100points, or just more than 1200 points from its highest level at the beginning of May.
Gold mining shares had a remarkable rally of 12.1percent, given the strong increase in the gold price by more than $40 (R597) per ounce to $1342. The industrial sector, helped by rand hedging stock, improved strongly by 5.7percent.
Given the strong depreciation of the rand, financials and property shares were marginally lower.
Economic diary: June 10 to 14
Tomorrow, June 11: Statistics SA (StatsSA) will release the manufacturing data for April.
Wednesday, June 12: StatsSA will publish the retail sales data for April.
Today, June 10: China: Balance of trade in May. UK: balance of trade, construction, industrial and manufacturing production, and GDP in April.
Tomorrow, June 11: China: vehicle sales in May. UK: unemployment rate in April. US: Producer price index (PPI) in May, and economic optimism index in June.
Wednesday, June 12: China: inflation rate and PPI in May. US: inflation rate in May; US: petrol and crude oil stocks change at June 7.
Thursday, June 13: EU: industrial production in April. US: import and export prices in May; US: initial (June 1) and continuing (June 8) jobless claims.
Friday, June 14: China: industrial production and retail sales in May, and outstanding loan growth in May. EU: balance of trade in April. US: business inventories in April.
Chris Harmse is the chief economist at Rebalance Fund Managers.