Main worry is the crisis building up over a civil service wage freeze
Financial markets are slowly returning to normal but they remain tense.
Domestically, the rand exchange rate has remained strong, but geopolitical factors may put the currency under severe pressure over the next two to three months.
The oil price had one of its best weeks this year as Brent crude at one stage started to test the $50 per barrel again, trading at $48 per barrel on Friday afternoon.
Shares on the JSE had a better week with the gold price under pressure, but with the price for platinum recovering.
The main worry developing in financial markets remains the crisis that is building up over the proposed wage freeze of civil servants over the next three years.
The court case between the government and trade unions on salary increases signed in an agreement three years ago, that brought a dispute over this year’s wage increase, will be heard on Wednesday.
In court documents, Minister of Finance Tito Mboweni declared: “What the government and the South African economy cannot now afford, and what is not just and equitable under the current circumstances, is for civil servants to claim yet further inflation-beating and private sector outperforming salary increases off an already high base.”
If the trade unions win the court case on the current wage agreement, the government will have to borrow an extra R78 billion.
This will push the central government’s debt to gross domestic product within the reach of 100 percent. It is expected that trade unions will also try to put pressure on the Treasury over the next two months till the main Budget in February to scrap the proposed three-year wage freeze. The rating agencies as well as investors will keep a worrying eye on these developments and it is feared that the rand exchange rate will suffer the most.
The rand exchange last week moved rather sideways in its usual volatile fashion. Against the dollar the currency traded on Friday afternoon at R15.26, only 6 cents stronger than the previous Friday. Against the pound the rand traded flat against the previous week on R20.37 and lost 5 cents against the euro on R18.22.
On the JSE, equities had a good week. The all share index gained 1 210 points (2.1 percent) to close on 57 822, its highest level since January 17. Industrials traded higher by 1.5 percent for the week, Financials increased by 2.8 percent, while listed property shares continue to surge as the index was up by 6.4 percent. This index has gained 21 percent since the beginning of this month.
This coming week it is expected that the price of petrol will decrease by another 27c a litre, while the price of diesel is likely to increase by 13c a litre.
The sharp increase in the oil price was mostly buffered by the stronger rand. Given changes that may see the rand move much weaker in the coming weeks and the likelihood that the oil price will keep on rising, fuel prices may turn around again and increase sharply during the first part of next year.
This coming week all eyes will be on the court case between the government and trade unions on the civil service pay crisis, on Wednesday.
Absa will release its latest manufacturing Purchasers Managers Index (PMI) today and Standard Bank its PMI on Thursday. Naamsa will announce new vehicle sales on Wednesday.
On global markets, investor interest will turn towards the release of the US non-farm payroll for November that will be released from Wednesday.
The two main indicators that will interest the markets will be the US unemployment rate, as well as the average hourly earnings for workers.
Almost all the developed countries will release their various PMIs during the week. The EU and most of the member nations will publish their inflation rate data for November.
Dr Chris Harmse is an economist at CH Economics