JOHANNESBURG - South African financial markets experienced a roller-coaster last week as mixed signals from the current global and domestic issues put investors in a confusing mood.
It was believed a week ago that the US and China would come to an agreement on tariffs that were to be introduced this past Tuesday. US President Donald Trump announced that “phase one” of a sound trade deal was on the cards. The US has delayed the proposed tariff increases.
Together with a small hope that a Brexit agreement would be reached on Thursday, equity markets across the world traded positively mid-week as the S&P500 once again had broken through the 3000 level on Thursday.
The Brexit “deal”, however, was stalled by the British Parliament.
The announcement by China that its economic growth rate had contracted further to 6percent during the third quarter against the previous quarter turned sentiment to the worse on Friday.
The Dow Jones index on Wall Street gave back some of its gains of the week as it traded almost 100 points down on Friday.
European stocks were all down on the pessimistic view that Brexit would fail. The FTSE 100 traded 0.4percent down on Friday. The DAX in Germany was down 0.3percent and the French CAC traded 0.8percent lower. Markets in the Far East also closed much lower.
At home, the introduction of Stage 2 load shedding by Eskom on Wednesday came as a shock to financial markets. Although the rand had moved more or less sideways, it could have been stronger in line with other emerging market currencies that had strengthened against the dollar.
SA Reserve Bank governor Lesetla Kganyago said on Thursday that the country may avoid a Moody’s rating cut in several weeks. This with the Treasury’s turnaround strategy policy document for the economy and support that Finance Minister Tito Mboweni was getting.
The FTSE/JSE All Share Index had a mixed week but had managed to end the week a marginal 186 points (0.3percent) higher at 55723. The Resources 10 index had lost 1.6percent due to the lower Chinese economic growth rate and softer resource prices. The stronger rand helped the Financial 15 index to gain 0.5percent, whereas both the Industrial 15 and the listed property index had ended the week flat.
The rand appeared stable, even though the Eskom saga brought some pressure. The local currency remained flat at R14.76 a dollar, although at one stage it traded at weaker levels than R15.
The possibility for a successful Brexit saw the rand soften against the euro from R16.31 to R16.48 and against sterling from R18.70 to R19.04.
The lower oil price helped keep prospects for fuel price relief next month alive. Until Thursday, the price of diesel was over-recovered by 7c a litre and 93 octane petrol by 10c a litre. The price of 95 octane, however, was still under-recovered by 4c a litre (over-recovery means that the price should fall).
This coming week, investors’ eyes will remain on Brexit, the release of most countries’ purchasing managers indices and the European Central Bank’s interest rate decision. At home, StatsSA will announce the inflation rate for September. Consensus is it will fall to 4.2percent from 4.3percent in August.
Chris Harmse is the chief economist at Rebalance Fund Managers.