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Financial markets: More of the same?

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THE MARKETS ON MONDAY COLUMN: The current strong recovery of global and South African financial markets continues, writes economist Chris Harmse.

Gold Bullion broke through the $2,400 level (R43,990) per ounce on Thursday last week and neared its all-time high of $2,431.55 on April 19, 2024. File picture

THE CURRENT strong recovery of global and South African financial markets continues.

Equity prices in the US rose on news that the US core inflation rate for April was lower (3.8%) than was expected (3.7%), as well as remarks made by US Federal Reserve chairperson Jerome Powell at a banking event in Amsterdam last Tuesday.

He remarked: “I expect that inflation will move back down … on a monthly basis to levels that were more like the lower readings that we were having last year.”

The S&P500 index jumped higher by 1.3% last week, gaining 11.8% since the beginning of the year.

This led to equity prices on Wall Street’s Dow Jones Industrial index gain another 1% last week, adding 6% over the past month.

The above bullish sentiment on world markets boosted South African stock markets.

This as precious metal prices remain bullish given the softer-than-expected US inflation data, which boosted prospects of rate cuts from the Federal Reserve. Gold Bullion broke through the $2,400 level (R43,990) per ounce on Thursday and neared its all-time high of $2,431.55 on April 19, 2024. The precious metal increased last week by $56 to $2,415 per ounce on Friday.

The platinum price, after breaking the $1,000 per ounce level the previous Friday (May 10, 2024) advanced by a further $87 to close last Friday on $1,087.

On the back of this the metal and resource equity boards on the JSE led the continuous strong bullish movement in equity prices during last week.

The resources 10 index increased 2.8% last week, adding to its gains of 22% over the last three months. The All Share index kept its winning streak last week, adding 3.1% over the past seven trading days. The index is now 11% up over the past month and 3.5% since the beginning of the year.

The All Industrial index won 1.7% over the past five days, setting a record high of 118 567 points last Thursday, gaining 13.5% over the past month.

The rand exchange rate remains bullish against the main foreign currencies. The rand appreciated by another 40 cents last week, trading at R18.15 against the dollar on Friday. This is 105c stronger than the R19.20 to the dollar level on April 26, 2024.

Against the euro, the rand also moved stronger by seventy-nine cents in the past three weeks to close at R19.73/€. This is the rand’s strongest level against the euro since July 19, 2023. Against the pound the rand improved by eighty-six cents since April 24 to R23.06/£ on Friday.

Since the Central Energy Fund determined the current fuel prices up to April 28, 2024, the price for Brent Crude had dropped sharply by $4.27 per barrel to $83.92 per barrel on Friday.

Given the sharp appreciation of the rand/$, the price for 95 petrol was over recovered by 78 cents per litre and the diesel price over-recovered by 85 cents per litre last Thursday (May 16, 2024). It is expected that fuel prices would come down sharply at the beginning of June 2024.

It seems that the signing of the National Health Insurance (NHI) Bill by President Cyril Ramaphosa, as well as the far worse-than- expected unemployment rate of 32.8% announced last Wednesday, had no negative effect on the rand exchange rate and bullish momentum in share and bond prices.

This coming week the economic calendar for domestic indicators awaits on Wednesday the release by Statistics South Africa of the inflation rate for April 2023. It is expected that both the main inflation rate (5.35%) and core inflation rate (4.9%) would remain flat at their March 2024 levels.

Movements on global markets this week will be dominated by the release on Wednesday of the US Federal Reserve’s Open Market Committee (FOMC) minutes of its last meeting in April 2024.

The US jobless claims orders to be announced on Thursday and its durable goods orders on Friday will also set the tone next week. Elsewhere in Europe, the European Central Bank President Christine Lagarde’s speech and the publishing of Great Britain’s inflation rate data for April will also be of note to financial markets.

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

– BUSINESS REPORT

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