Chris Harmse
PRETORIA – More data is beginning to indicate that the economy, and therefore the prospects for financial markets, is improving. This sentiment was echoed by SA Reserve Bank governor Lesetja Kganyago when he delivered the central bank’s and the Prudential Authority’s annual reports to Parliament’s standing committee on finance last week.
Kganyago emphasised that although the bank still expected the economy to shrink by -8.2 percent this year, there were definite signs that some sectors were improving stronger than expected after the lockdown measures were eased.
With the exception of tourism, other sectors were recovering in almost a V-formation, and although still negative, they were moving into single-digit year-on-year negative growth territory.
The Absa Manufacturing Purchasing Managers’ Index rose to 58.3 index points in September from 57.3 points in July. This is quickest expansion in manufacturing activity on record and the fifth consecutive month of growth. Business activity and new sales were boosted by the further easing of the lockdown restrictions.
In reaction to these slow but sure indications that the economy is returning to normality, equities, bonds and the rand exchange rate are moving more positively with far less volatility.
On the JSE, the All Share Index ended Friday on 50 781 points, or 1.2 percent higher than the previous week’s close. Industrials increased 2.1 percent and resources gained 3.8 percent, while financials ended the week -3.9 percent lower.
The JSE is also following a steady recovery in world markets last week, despite indications that no further US stimulus package will be set in place before the presidential elections next month.
US technology stocks once again led Wall street as all three major indices – the Dow Jones (3.1 percent), the S&P 500 (3.2 percent) and the Nasdaq (3 percent) – recorded sharp increases last week.
After losing some ground earlier last week, the rand recovered strongly on Friday, trading 17 cents higher against the dollar at R16.41, or 6c stronger than the previous Friday. The rand appreciated 12c to R21.34 against the pound, and 11c to R19.40 against the euro. The R187 bond remained at 7.22 percent.
As was forecast last week, fuel prices came down sharply from Wednesday. Given the steadier and stronger rand during the first week of October, despite the oil price reaching $43 per barrel, one can expect further cuts in fuel prices at the beginning of November.
Dr Chris Harmse is an economist and chief investment officer.
BUSINESS REPORT