MARKETS ON MONDAY: South African equity prices performed poorly during August. Although most indices on the JSE recovered somewhat last week, stocks remain under pressure, on further inflation concerns and rising interest rate threats, writes economist Chris Harmse.
SOUTH African equity prices performed poorly during August. Although most indices on the JSE recovered somewhat last week, stocks remain under pressure, on further inflation concerns and rising interest rate threats.
The rand also performed poorly last month. Against the US dollar the currency lost 104 cents from R17.841 to R18.88 to the dollar, depreciating by 106 cents against the UK pound from R22.87 to R23.93 to the pound and deteriorated with 68 cents to the euro from R19.60 to 20.28 to the euro.
On the JSE, share indices lost heavily last month as the all share index traded down by 4.36%, Resources lost 7.44% (RES 20 index), financials shredded 1.4%, while the industrial board traded down by 5.09%. On the capital market, the All-Bond Index (ALBI) gained a marginal 0.14%.
The strong increase in the oil price over the last month to $86.80 (R1636) per barrel on Friday, as well as the weaker rand, had led to a large under recovery in the petrol and diesel prices. The price for 95 petrol, therefore, is expected to increase by R1.65 and that of diesel by R2.85 per litre on Wednesday.
Given the steady increase in the oil price the last week, and a rand that tends to move to levels higher than R19.00 to the dollar, prospects for fuel prices at the beginning of October also do not look good. The effect of the sharp increase in the diesel price may not have a big effect on the inflation rate of September.
Even with the sharp increase, the pump price for diesel will increase to R23.06 cent per litre in Gauteng. This is still 90 cents per litre lower than the R23.96 that motorists paid in September 2022, and in fact should contribute to a lower inflation rate for September. If the high level of the price diesel, however, continues till January, the base effect would then be far less and the effect on the inflation rate will lead to an upward pressure in the inflation rate.
In the US the job market added 187,000 new jobs in August and 17,000 more than the 170,000 that was expected. Despite this higher employment addition, the US unemployment rate increased sharply from 3.5% in July to 3.8% in August as more persons returned to the job market.
At the same time, US non-farm wage growth subsided as the average hourly earnings rose by a mere 0.2% and much lower than the 0.4% increase in July. In the 12 months through August, wages advanced 4.3% after increasing 4.4% in July.
This job data shows that the US economy is starting to feel the effect of the sharp increases in the Bank rate by the Federal Reserve over the last year and may contribute towards the Fed keeping its bank rate unchanged at their next meeting in three weeks’ time.
On Wall Street markets reacted mixed on the job data, with the Dow Jones index gaining Friday 0.3%, the S&P500 increased by 0.8% but the Nasdaq lost 0.2%. For the week the Dow Jones has increased with 1.15%. The S&P500 gained 2.03% and the Nasdaq was 2.46% higher. For the month of August, the Dow Jones lost 1.25%, with the S&P500 (0.5%) and the Nasdaq (0.4%) that ended the month flat.
This week, domestic financial markets await the release of South Africa’s second quarter economic growth rate by Statistics South Africa on Tuesday. It is expected that the growth in the gross domestic product had increased strongly to 1.0% from the 0.2% during quarter one.
The low base of last year, as well as expected stronger export growth and a surge in manufacturing growth will be the main drivers for the improvement. This despite a decrease in retail sales during the quarter.
On Thursday, the SA Reserve Bank will release it Quarterly Bulletin for quarter two. It is expected that the current account deficit had decreased further to R120 billion against the deficit of R66bn during quarter one.
On global markets the EU will announce the first estimate of the quarter three gross domestic product growth rate for the eurozone on Thursday, as well as unemployment rate during quarter two for the region.
The release of the US crude stock oil on Thursday will also draw attention as the oil stock dropped more than 10 million barrels last week, putting upward prices on crude oil.
* Chris Harmse is the consulting economist of Sequoia Capital Management.
– BUSINESS REPORT