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The testimony of the US Federal Reserve (Fed) chairperson Janet Yellen on monetary policy in front of the US congress last week pleasantly surprised financial markets.

Yellen said the Fed was puzzled by the slowdown in global inflation. She testified that it seemed sluggish price rises had structural causes. As a result, the Fed would have to be cautious before increasing interest rates. She, however, indicated that it was still likely to happen but only gradually.

This testimony, as well as the lower-than-expected US inflation data of 1.8percent in June had a negative effect on the dollar and boosted the buying of emerging market shares and bonds.

Retail sales in the US also unexpectedly dropped for a second month in June, suggesting a smaller-than-expected rebound in economic growth. This also supports US interest rates to be placed on hold for the time being. Consequently, US stocks and bonds rallied strongly last week.

Locally, a return to South African shares and bonds by foreign investors contributed to one of the best performing weeks on the financial markets this year. The rand returned to stronger levels and commodity prices also experienced a rally at the close last week. The gold price increased on Friday by $11.50 (R151) to $1228 an ounce and platinum was up $14.67 to $917 an ounce.

The rand appreciated by 35cents (2.6percent) against the dollar last week and traded at R13.04 just after the close of the JSE on Friday. Against the pound, the rand gained 27c over the week (1.6percent), trading at R17.01 at the close of the JSE on Friday. It was 36c (2.4percent) stronger against the euro over the week at R14.92 on Friday evening.

The all share index gained almost 1600 points (3.3percent) last week to close at 53598 points on Friday. The index is now 5.8percent higher since the beginning of the year (year to date).

Over the week, the industrial index gained 3.6percent and is now 11.3percent higher for the year to date. Financials also improved last week, up 2.8percent, while resources had gained 3.2percent.

The listed property index advanced 2.4percent.