Dr Chris Harmse
JOHANNESBURG - The Rugby World Cup and Moody’s euphoria is over: reality kicks in.

South Africa could for once live in a world of hope and glory and global support during the previous weekend, after the historical Rugby World Cup win and the news that the rating agency Moody’s believes that the country should not be downgraded to junk status.

Financial markets reacted with a momentum of positive sentiment during the beginning of last week.

Spurred on by the visible groundbreaking of the new Ford automobile component plant in Silverton, Tshwane, and the opening of President Ramaphosa’s investment summit, we saw the rand exchange rate recovering all the ground it lost after the devastating negative news of the government's current debt situation the previous Wednesday. Equities on the JSE also had a rally since the previous Friday, up to last Wednesday, and the Alsi on the JSE had easily broken through the 57650 level, more than 5percent higher than the beginning of the previous month (October).

Even listed property gained strongly and bond rates came back to almost the same level as the day before the Medium Term Budget Policy Statement. The lowering of the bank rate by the US Federal Reserve the previous week as well as some positive developments for a possible settlement on the US/China trade war also contributed to a mini rally in global equity prices and all three the Wall Street indices in New York had recorded record high levels.

The euphoria around South Africa's economy and financial markets, however, came to a rapid standstill as reality kicked in on Thursday.

The news that South Africa's manufacturing production had shrunk 2.4percent from a year earlier in September 2019, from a downwardly revised 1.5percent fall in August, was unexpected.

It's the fourth consecutive month of negative numbers in industrial activity. It was also announced that the South African Chamber of Industry’s business confidence had contracted again from 92.4points in September to 91.7points in October (a value of less than 100 indicates negative confidence). Eskom once again had to introduce stage 2 load shedding during Thursday evening and Friday morning.

These realities of the struggling South African economy had led to a quick turnaround in South African financial markets on Thursday and Friday. On the JSE, the Alsi lost 1035 points or 1.8percent alone over the two days and closed last Friday on 56650 or 0.05percent down for the week. The Resources 10 index traded down by 1.02percent on the back of lower commodity prices.

The Financial 10 index ended the week on a high, gaining 3.6percent on a much stronger rand.

Listed property in the same manner ended the week 1.3percent in the green, while the Industrial25 index lost 1.16percent, given weaker retail counters.

On the international front, President Trump announced on Friday that the US has not yet agreed on a tariff roll-back with China.

This had led to a sharp decrease in US share prices and at the close of the JSE on Friday the Dow Jones industrial index already traded 0.3percent lower with the S&P500 losing 0.1percent with expectations that global shares might shrink even further this week.

This week, all eyes will be on StatsSA, which will release South Africa’s retail sales (on Wednesday) and mining production data for September this coming Thursday.

The negative number for manufacturing already indicates that the GDP growth rate for the third quarter remains under pressure.

It is expected that mining production also had grown negatively.

On the international front, the UK, Germany, the EU and Japan will announce their GDP growth rates for the third quarter. The UK will also publish its latest industrial and manufacturing numbers. Germany will release its economic sentiment index tomorrow. The US will release its retail sales, industrial and manufacturing data for October on Friday.

Dr Chris Harmse: Economist and chief investment officer.

BUSINESS REPORT