Financial markets remain nervous; share prices on the JSE at record levels
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.By Chris Harmse
SOUTH Africa’s financial markets are experiencing volatility and uncertainty. The rand and bond rates remain under pressure.
Equities, however, remain bullish. Bond rates in the US and Europe continue to move weaker in anticipation of inflation pressure and possible interest rate hikes.
The stronger-than-expected jobs report in the US on Friday pushed the 10-year-treasury yield above 1.6 percent. The US Labor Department announced that non-farm payrolls jumped 379 000 during February, as the unemployment rate fell to 6.2 percent. Expectations were that only 210 000 new jobs were added and that the unemployment rate would have stayed on the January 6.3 percent level.
Equities on Wall Street, however, rebounded sharply on Friday, with the Dow Jones Industrial Index opening more than 300 points higher, while both the S&P500 and Nasdaq opened 1 percent higher.
Stocks that will benefit from a rapid economic comeback gained in the wake of the jobs report will mostly be banks and retailers. Energy stocks like Occidental Petroleum jumped by more than 3 percent. The higher bond rates again have led to a sell-off of tech shares with high valuations like Tesla and Peloton.
This sudden bounce back of shares on Friday in the US follows a day of uncertainty and negative sentiment on remarks made by the Federal Reserve chair Jerome Powell’s remarks on rising treasury rates. He remarked that although the sudden jump in bond rates caught his attention the Fed stays neutral on any possible steps to be taken to counter rising treasury rates by adjusting the Fed’s asset purchase programme.
South African shares, bond rates and the rand followed these volatile US and global movements last week. On Thursday evening the rand lost more than 45 cents against the dollar, and shares lost more than 1.5 percent. Bond rates last week increased sharply with the R187 shorter duration government security rose from 7.33 percent to 7.58 percent at the close on Friday. This is the third consecutive week that bond rates increased sharply. The R187 had shot up by 12.8 percent since February 5 when the Treasury traded at 6.66 percent.
The US jobs data, the sharp increase in US futures during Friday morning and afternoon, as well as the strong opening on Wall Street boosted shares on the JSE. This helped most indices to end the week much stronger than the previous Friday and once again near record high levels.
The all share index recovered strongly and increased by 2.33 points last week to 68 271 points, after it lost 2 percent the previous week. This is the highest Friday close ever. Industrials recovered by 1.7 points, after the slump of 4.4 percent the previous week. The Resource 10 index increased by 4.6 percent, Financials also recovered as the Fin15 advanced by 4.6 percent. Listed property share prices remain on their winning streak as the index closed also on a new high for the year, gaining 3.2 percent and is now up year to date by 7.4 percent .
Gold and platinum prices continue to retract. The gold price closed Friday on $1 700 (R26 119), or $39 dollar per ounce down from the previous week. Platinum lost $56 last week to $1 129.
This coming week all eyes will be on the release of South Africa’s long awaited gross domestic product (GDP) economic growth rate for the fourth quarter of 2020. It is expected that Stats SA will announce that the year-on-year growth rate was 4.8 percent (6 percent in the third quarter), the quarter-on-quarter rate to be 3.7 percent and the growth rate for the whole of 2020 around -7 percent. On Wednesday the Reserve Bank will publish its quarterly bulletin for March with the current account numbers the most important. StatsSA will also publish the latest mining and manufacturing production numbers for January.
Globally most developed markets will announce their latest inflation numbers, the most important being that for the US. This rate will set the tone for bond rates and equity markets for the week. Germany will announce its latest current account balance number. The EU will publish the third estimate of its GDP growth rate for the fourth quarter 2020, and the ECB will announce the EU interest rate decision.
Dr Chris Harmse is an economist at CHEconomics
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