JOHANNESBURG – After a sharp rebound on South African financial markets the previous week, share markets, bonds and the rand exchange rate once again came under pressure last week, due to mostly global risk factors and disappointing domestic mining production.
Doubt about a negotiated trade agreement between the US and China before the G20 summit, as well as the hawkish mood of the Federal Reserve on raising interest rate next month had led to a large contraction in global share and bond markets, especially emerging markets last week.
Sentiment turned against risky assets and the US dollar had strengthened yet again.
South African share markets – given their high level of liquidity and easy tradeability in relation to other emerging markets – suffered the most.
On the back of the better-than-expected gross domestic product growth numbers, lower unemployment and higher wage growth, US stocks rallied last week, despite the uncertain outcome of the US mid-term elections.
At the close on Wall Street last Thursday, the Dow Jones industrial index was up by 3.6 percent for the week, bridging the 26 000-point level again.
Although the index subsided somewhat at the opening on Friday, it is expected that US share prices could rebound once again.
On the JSE, the all share index, after increasing by more than 6 percent the previous week, had contracted by 1 074 points, or 2 percent, last week. Financial and property shares, however, continued on their strong recovery.
The financial 15 index had improved by a further 0.9 percent and is now 9 percent higher over the past two weeks.
In the red
Listed property gained another 2.4 percent last week and is now up by 5 percent since the last week in October. Resources traded 1.9 percent in the red.
The rand exchange rate initially had recovered strongly during the first part of last week as the dollar lost some ground after the mid-term elections in the US.
The dollar traded at R13.87/$ at one stage last Thursday. The news that the Federal Reserve is more than likely to increase US interest rates aggressively over the next few months pushed the rand weaker to levels close to R14.30/$ on Friday, the same level as the previous week.
The rand traded stronger against the pound by 4 cents on R18.64 and on R16.64/euro, or 18 cents weaker than the previous week.
The international oil price dipped to under $70 (R1 000) per barrel on Friday and given the current value of the rand, the price for petrol was over-recovered by around 149 cents per litre and that of diesel by 79c per litre. If the price of oil and the rand keep their current levels, it may bring huge relief for consumers at the beginning of the festive season.
Chris Harmse is the chief economist Rebalance Fund Managers.
The views expressed here are not necessarily those of Independent Media.