SA markets jittery on vaccine challenges
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FINANCIAL markets in South Africa were volatile and nervous last week due to worries around the vaccination programme roll-out of the government.
The sharp increase in the platinum price and foreign risk demand for emerging market stock as well as the sharp increase in Naspers, nevertheless, helped equities to end the week stronger.
It was expected that more details on the Covid-19 phase application programme would have been announced during the week, but this was in vain.
The only announcement in this regard was made by President Cyril Ramaphosa on Tuesday, to say that his deputy, David Mabuza, would lead the inter-ministerial committee that would oversee the Covid-19 vaccination programme.
The president also said in this regard: “We are going to be getting the vaccines in the numbers that we require here in South Africa and we are pleased that our people are showing a keen interest in the whole issue of vaccines.”
This statement, however, was not well accepted.
Due to the lack of any further information on this programme, as well as further restrictions across the globe to curb the escalating Covid-19 cases, volatile movement in South Africa’s equities, bonds and the exchange rate were present.
Speculation that South Africa’s budget deficit to gross domestic product (GDP) might soar further to 11 percent of GDP, pressuring heavy tax increases, also saw the rand starting to feel the pressure.
The announcement by the Monetary Policy Committee (MPC) of the South African Reserve Bank last Thursday that the repo rate would have to be increased as early as the second quarter of 2021 also did not help to keep the local currency at its stronger levels seen at the beginning of the week.
This expectation seems strange in light of the fact that the MPC still expects that inflation will reach 4 percent in 2021, up from the 3.3 percent in 2020 – still much lower than the mid-point target of 4.5 percent, which is only expected to be reached in 2022.
The expectations of a strong surge in fuel and food prices as well as a sharp depreciation of the rand after the general Budget in February may underline the expectations of two repo rate hikes in 2021.
On the JSE, the all share index continues to reach new record levels as the index on a few occasions broke through the 64 000 point level for the first time.
The index ended Friday at 63 970 points, or 421 points (0.7 percent) higher than the previous Friday.
Financials as a proxy for domestic geopolitical and economic expectations had another negative week.
The FIN15 ended Friday on 11 685, or 1.9 percent weaker for the week.
Resources also continued to lose momentum, with a second consecutive negative week.
The Resources 10 index lost a further 2 percent, the same margin as the previous week. Industrials again continue to ignore negative domestic sentiment and a volatile rand, with Naspers surging by another 6 percent last week.
The Indi15 index added 3.3 percent and is now already 11.1 percent higher for the year to date.
Property stays under pressure and at the close on Friday the listed property index ended 1.5 percent down for the week.
Bond rates remain strong with the R186 benchmark short run gilt trading on 6.68 percent on Friday, only marginally higher than the 6.66 percent of the previous week.
In the US, shares after the inauguration of President Joe Biden were stronger, with new record levels for all three main indices.
On Friday afternoon, the Dow Jones industrial index traded down for the day by 0.8 percent, but was still 0.8 percent higher than the previous Friday.
The S&P 500 index gained 2 percent and the Nasdaq was 3.6 percent higher for the week at the opening of trade on Friday.
This coming week all eyes will be on the movement in the rand-to-dollar exchange rate and the Brent oil price. Since the previous announcement on fuel prices, as from the beginning of January 2021, fuel prices have remained strongly under pressure.
Up to last Thursday, petrol 95 was under-recovered by 80cents per litre and diesel by 60c per litre, indicating an expected sharp increase in fuel prices at the beginning of February.
The South African Reserve Bank will release its leading business cycle indicator for November on Wednesday and the M3 money supply and private sector credit accommodation data for December on Friday.
Statistics SA will publish the production price inflation numbers on Thursday.
The Department of Customs and Excise will publish the latest trade balance data on Friday.
Globally investors will look out for the announcement of the latest unemployment data for the UK, Russia and France.
The US will publish its GDP growth rate data for the fourth quarter on Thursday and its personal income and expenditure numbers for December on Friday.
Dr Chris Harmse is an economist at CH Economics.