By Chris Harmse
STOCK prices on the JSE continued to move very bearish during last week, losing much ground during the first four days.
The all share index, on the back of a strong surge in US treasury rates since March 11 on renewed inflation fears and interest rate hikes, lost 3 426 points, or 5 percent, up to Thursday’s close on 64 783 points.
This was the biggest fall in the all share index since March after the total lockdown was introduced. Despite the announcement by the Federal Reserve last week that it did not see that US interest rates would increase soon and that an inflation spiral was also not forecast, bond rates in the US climbed sharply, strengthening the dollar, and led to a sharp decrease in oil prices.
This has led to a huge sell-off of risky assets in emerging countries and caused equity prices on the JSE to fall sharply. The US Fed foresaw that US inflation would be contained just above its target of 2 percent T
he Fed welcomed the rise in market interest rates as it is an indication that the US economy was recovering. The announcement that 100 million US citizens already had been vaccinated against the Covid-19 virus and that it intended to administer another 100 million over the next 50 days, also led to a stronger dollar and further inflationary fears.
There was a raft of figures last week. Data from Statistics South Africa showed on Wednesday that South Africa’s inflation rate was 2.9 percent in February – less than the lower target limit of 3 percent.
However, on Thursday SA Reserve Bank Governor Lesetja Kganyago announced that the Monetary Policy Committee (MPC) had voted to keep the repo rate unchanged, but was still worried about the downside risks for inflation due to an expected strong increase in administrative prices (electricity and water), fuel and food prices.
The MPC believes that the repo rate may even increase later in the year.
“The implied policy rate path of the Quarterly Projection Model (QPM) indicates an increase of 25 basis points in each of the second and fourth quarters of 2021,” it said.
The lower inflation rate and no change to interest rates, restored some positive sentiment on the JSE on Friday.
Equities on the JSE had one of its best days this year on Friday also due to bullish sentiment on Wall Street, rising oil prices, a weaker dollar and a surge in optimism as volatility risk declined. Share prices recovered strongly and most indices ended the week much higher. There was a big appetite for resources during the day.
The all share index ended Friday on 66 834 points. This is 3.16 percent higher for the day and up by 1.4 percent up for the week, after its strongest decline since March 2020 the previous week.
Resources had the biggest increase on Friday as the Resources 10 index surged 5 percent and ended the week higher by 2 percent. Industrials also had a field day on Friday, climbing 2.3 percent to end the week 1.5 percent higher. The weaker rand, however, contributed to financials (0.2 percent) and listed property (-0.7 percent) ending the week flat.
The stronger dollar for most of last week contributed to the rand losing all its ground of the previous week. Against the US dollar the currency lost 30 cents or 2 percent to close Friday on R15.01 to the dollar. Against the Pound the currency also gave up 30 cents to trade Friday on R20.70 and lost 20 cents against the Euro to R17.70.
It is still expected that fuel prices will increase sharply at the beginning of April. On Friday the under recovery on petrol was 75 cents per litre and on diesel 43 cents per litre. Given the introduction of the increase of the fuel levy and UIF levy also in April, one can expect the price for petrol to increase by 102 cents per litre and diesel by 70 cents per litre on April, 7.
Domestically, the Reserve Bank will announce the latest credit extension figures to the private sector by the banks, as well as the growth in M3 money supply tomorrow.
On Thursday Absa will release its Purchasers Managers Index (PMI) for March and the total new vehicle sales also for March will be published.
Globally, analysts and investors will await the latest unemployment rate and retail sales data for Japan. Germany will also release its unemployment numbers. On Friday the US job data for March will be released. The US unemployment rate, jobless claims and hourly wages will give definite direction for global financial markets.
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.
BUSINESS REPORT