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Economics versus politics: The markets were the winners

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OPINION: The uncertainty over how the new government of national unity will function, the make-up of the new Cabinet and the way forward for the new coalition politics, brought uncertainty among South Africans last week with many fearing that the rand and equity prices will move negatively due to the selling of shares and bonds, writes economist Chris Harmse.

South African president Cyril Ramaphosa. File image.

THE UNCERTAINTY over how the new government of national unity will function, the make-up of the new Cabinet and the way forward for the new coalition politics, brought uncertainty among South Africans last week with many fearing that the rand and equity prices will move negatively due to the selling of shares and bonds.

At the beginning of last week this uncertainty seemed to have affected financial markets negatively. On the other side however, economic news from the US and global market movements once again had shown that South Africa is still dependent on global fluctuations.

The figures show that in the first days after the election, both the ALSI on the JSE and the rand traded weaker. By Tuesday, June 4, just after the results were announced, the rand lost almost fifty cents to trade around R18.97/$ and the ALSI lost more than 1.0%.

During the week after the elections, the uncertainty around the political climate towards either a coalition between the ANC, DA and IFP, or a movement to the left between the ANC, MK and EFF left markets uncertain and very flat.

The announcement last Wednesday (that the US core inflation came down to 0.3% for the month of May 2024) not only boosted global equity and bond prices, but the JSE had shot up by more than 1.3%.

This, despite the more hawkish tone of the FED at its press conference last Wednesday that it expects that the US FED rate will now only be lowered one time this year.

The announcement last Friday by President Ramaphosa that the ANC, DA and IFP, together with other smaller parties, will form the government of national unity, as well as the appointment of Thoko Didiza as the new Speaker, were welcomed by the share and foreign exchange markets.

The JSE ended the week on the same level as before the elections, despite downward movements on other emerging markets.

The rand appreciated even further and traded on Monday, June 17 at R18.25/$. This is more than seventy cents stronger than R18.96/$ on June 6.

This week, financial markets in South Africa will be dominated by the release by Stats SA of the inflation rate for May 2024 and the retail sales for April. It is expected that the annual inflation rate came down from 5.2% in April 2024 to 5.0% in May 2024.

The Monetary Policy Committee (MPC) only meets on July 18 and will await the inflation rate for June as well as interpreting the FED’s hawkish tone after last week’s decision not to lower its bank rate. It is expected that retail sales will come down by -1.8% over the last year.

Movements on global markets this week will be dominated by the release of the US retail sales for May on Tuesday, various speeches by members of the Federal Reserve, and the latest manufacturing production data.

Elsewhere, the Bank of England will announce its interest rate decision on Wednesday, as well as its retail data for May on Friday.

* Chris Harmse is the consulting economist of Sequoia Capital Management and a senior lecturer at Stadio Higher Education.

– BUSINESS REPORT

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