By Dr Chris Harmse
FINANCIAL markets across the globe kept their positive momentum from last month with the news that a Covid-19 vaccination created by Pfizer/BioNTech will be introduced already in the UK next week.
In the US, the two main forces driving equities are the US Federal Reserve’s stimulation and the expected vaccinations over the next few weeks.
The proposed pledge by the Fed to support the economy by keeping interest rates low and buying back billions of dollars of bonds each month had led to US stocks to break record levels almost on a daily basis, with the S&P500 index testing the 3 700 mark from 3 300 points at the beginning of the last month meaning a 12 percent increase within one month.
The US non-farm payroll employment rose by 245 000 in November and the unemployment rate edged down to 6.7 percent, the US Bureau of Labor Statistics said on Friday. This data, as well as the roll-out of the Covid-19 vaccine in most developed markets over the next month has boosted emerging market shares, led by gains in commodity, retail and industrial stocks, which tend to benefit from an improving economic outlook.
Domestically, the rand exchange rate stays strong despite the ongoing legal battle between the Department of Finance and the civil servants labour unions (Cosatu) over the government’s decision to unilaterally withdraw part of the agreement, which saw public servants not receiving salary increases in April.
On Friday, the currency closed at R15.15 to the dollar, 12 cents stronger than the previous Friday, but 102c stronger than the R16.29 a month ago as the dollar weakened against most currencies. Against the pound the rand closed on Friday at R20.48, 19c weaker than the previous week’s R20.39. Against the euro the rand also depreciated with 17c over last week and closed on Friday at R18.41.
The gold price increased by $53 last week to close on Friday at $1 835 (R2 7873) and the price for platinum shot up by $100 to $1 070 an ounce. On the capital market the R186 government bond traded Friday at 7percent against 7.20 percent the previous Friday.
On the JSE, equities, in line with global markets, had another good week. The better-than-expected US job data also boosted share prices at the close on Friday. The FTSE/JSE All Share Index gained 1 597 points (2.8 percent) during last week to close at 59 419 points.
The index is now 15 percent higher than the end of October and 4 percent up since the beginning of the year. Financials last week increased by 0.5 percent, while listed property shares continued their strong recovery as the index was up by 5.2 percent, 28 percent higher since the beginning of November.
Resources, boosted by bullish emerging market sentiment and growth prospects in China, gained strongly last week. The Resources 10 index ended on Friday 8 percent higher than the previous week and 20 percent than a month ago, gaining 15.7 percent since the beginning of the year. Industrial shares moved sideways.
This week, all eyes will be on the release of South Africa’s economic growth data for the third quarter by Statistics SA tomorrow.
It is expected that real GDP increased by 50 percent compared with the second quarter. During the second quarter, the economy shrunk by 51 percent. GDP is expected to have fallen by 7.5 percent this past quarter. StatsSA will also release the retail data for October on Wednesday.
Dr Chris Harmse is an economist at CH Economics
BUSINESS REPORT