THE MARKETS ON MONDAY COLUMN: Global and South African financial markets have continued to recover strongly, writes economist Chris Harmse.
GLOBAL and South African financial markets continued to recover strongly last week. The rand appreciated for the second consecutive week, while the Brent oil price is at its lowest since March 13.
The outcome of the US Federal Reserve’s Federal Open Market Committee (FOMC) meeting on interest rates last Wednesday, as well as the non-farm payrolls data that were released on Friday, indicate US interest rates will start to come down within the next three to five months.
US Federal Reserve chair Jerome Powell declared in no uncertain terms that the central bank’s next move will not be a rate hike, and that rates should start to decrease during the second part of the year. The Fed kept its bank rate unchanged in the range of 5.25% to 5.5%.
Powell stressed they would continue to monitor the inflation and job data. He also made it clear that the upcoming US presidential election will have no effect on the FOMC’s decisions and that the central bank will make its decisions independently.
He said: “That any way otherwise could result in negative consequences. It’s hard enough to get the economics right here. These are difficult things, and if we were to take on a whole other set of factors and use that as a new filter, it would reduce the likelihood we’d get the economics right.”
These comments provoked a strong rally on Wall Street, with the Dow Jones industrial index shooting up by more than 500 points in the session after the comments.
This welcome sentiment on US and global stock markets was followed by the non-farm payrolls data released on Friday. The US economy created 175,000 new jobs in April, lower than the 303,000 revised numbers for March and well below the market expectation of 243,000. These lower-than-expected job increases contributed to US unemployment rising marginally to 3.9% against the 3.8% the previous month. Annual hourly wages rose lower than the expected 4.1% coming in at 4.0% last month.
US equities recovered strongly on the job data. The Dow Jones industrial index increased by 1.2% on Friday, ending the week flat. The S&P500 index rose by 0.6% last week and is still 24% higher than last year and 7.57% up since the beginning of the year. On the JSE, stock prices increased strongly for the second consecutive week.
The All Share Index ended the week 2.8% higher over the last seven days and is now almost 1.0% in the green since the beginning of the year. Industrials traded 2.7% higher over the past seven trading days and are now 4.52% higher for the year-to-date.
The stronger rand contributed to a sharp increase in financial share prices. The FIN15 index gained 4.4% over the last week. Resources again traded lower on the back of the stronger rand. The RES10 index shrunk by 3.0% over the last seven days, but remains 7.66% higher since the beginning of the year.
The rand exchange rate continues to appreciate. Against the dollar the currency traded stronger by thirty-one cents last week, ending at R18.50 to the dollar at the close on Friday. This is now 50 cents lower than R19.20 the previous Wednesday – eight trading days, and the strongest since January 2 this year.
A year ago, on April 8, the rand traded at R18.33 against the dollar. The Brent oil price dropped by $6 (R111) per barrel last week to $83.10. Bitcoin last week lost $3,000 to levels around $61,500 on Friday.
This coming week, the economic calendar for domestic indicators awaits the release by the SA Reserve Bank on Tuesday of the economy’s level of gold and foreign reserves data. On Thursday, Statistics South Africa will publish the Manufacturing Production figures for March.
Movements on global markets this week will be dominated by the Bank of England (BoE) interest rate decision on Thursday. It is expected that the BoE will keep its repo rate unchanged at 5.25%.
Great Britain will also announce its preliminary economic growth rate for the first quarter 2024 on Thursday. It is expected that the UK economy will have grown by 0.5% (annualised) against the -0.2% contraction during Q4 last year (2023).
* Chris Harmse is the consulting economist of Sequoia Capital Management and a senior lecturer at Stadio Higher Education.
– BUSINESS REPORT
