Chris Harmse
THE rand exchange rate remained at its strongest level in the past three years, contributing to stronger financial markets, last week.
On Thursday, the rand traded near R13.70 to the dollar, more than 20 cents stronger than it did the previous week.
At the close on Friday, the rand traded at R13.76 to the dollar.
Despite a possible third wave of Covid-19 infections in South Africa, the slow pace of vaccinations and possible load shedding, equity markets ended the week positive, and bond rates were steady.
The rand remained strong despite the news that producer price inflation had increased 6.7 percent last month, up from 5.2 percent in March.
The strong increase, however, was in line with market expectations of 6.8 percent.
It was the highest producer inflation rate since November 2018. Prices spiked at the factory gate mostly because the prices of coke, petroleum, chemicals, rubber and plastic products increased by 11.9 percent, compared with 4.2 percent in March.
The prices of petrol (27.8 percent), diesel (16.6 percent), food, beverages and tobacco (6.7 percent), and metals, machinery, equipment and computing equipment (8 percent) increased much faster than they did during March.
Despite the sharp rise in producer price inflation, it is expected that, because of baseline effects and the stronger rand exchange rate, producer prices will increase at lower rates during the latter part of the year. Financial markets, therefore, expect that producer price inflation will not pose a serious threat to the inflation rate and interest rates this year.
Worldwide, equity and capital markets experienced volatile movement for the third consecutive week. Mixed economic data and the concern about a further slump in Bitcoin, weighed against stock price increases, as traders focused on the US gross domestic product growth data for the second quarter.
On Wall Street, share prices rose sharply last week, particularly on Thursday and Friday, as it became clear that consumers had recovered from the pandemic blues and were spending their stimulus cheques. Worries about US inflation, however, fuelled volatility.
The US Federal Reserve’s inflation measure, the Consumer Price Index excluding food and energy, rose 3.1 percent last month, the highest increase since 2008, when the global economic meltdown nearly crippled the financial markets.
Stock prices on the JSE were also volatile last week. The stronger rand did not help resources and rand-hedge industrials, while financials and listed property shares recovered strongly.
On Friday, the FTSE/JSE All Share Index traded 1 300 points (2 percent) higher than it did at the previous week’s close.
Resources ended the week 1.3 percent lower. This was the third consecutive week of decreases, and it has resulted in the Resources 10 Index losing 7.3 percent during the past 15 trading days. Industrial shares continued to recover, and the Industrial 25 Index gained 3.5 percent last week.
Helped by the stronger rand, financials gained another 4.8 percent and were 8 percent higher over the past two weeks.
Listed property also recovered last week, and the index rose 1.7 percent.
Dr Chris Harmse is an economist at S3 Capital Financial Planners.
*The views expressed here are not necessarily those of IOL or of title sites
BUSINESS REPORT