SOUTH African equity markets and the rand remained stable last week. Despite the awaited sharp increase in the petrol price, the news of the government’s commitment to subsidise sharp fuel price hikes, as well as the news that the unemployment rate came down to 34.5 percent, kept interest in South African assets.
The economy created 370 000 new jobs during quarter one and outperformed the 310 000 new job seekers in the job market. This meant that 60 000 less people were unemployed than at the end of last year.
At the close on Friday the rand remained stronger against the major global currencies. Against the dollar, the rand gained 6 cents over the week to R15.52, appreciated by 23c against the pound to R19.42 and remained steady against the euro on R16.64.
On the JSE the all share index managed to end last week 0.6 percent higher after some volatile movements earlier in the week. The index is now 3.7 percent down since January 1, 2022, but remains one of the strongest equity markets in the world.
The financial sector remains bullish against the background of a stronger rand. The FIN15 index, normally a proxy of domestic market sentiment), gained 1.3 percent last week. This is the fourth consecutive week of increase, and the index is now 11.3 percent up for the year. Industrial stocks also recover steadily, as the IND25 index added 1.8 percent last week. Resources remains volatile and the RES10 index ended the week down by 1.6 percent, but remain 6.6 percent up for the year.
Further stagflation fears in the US emerged last Friday and investors and economists now fear that the US can move into a recession. What normally is regarded as “good news” turned into” bad news” after the job report was released on Friday. The US non-farm payrolls during May were up by 390 000 against the expected 319 000.
Investors now fear that these data will fuel further spending and inflation in the US economy and gives room for the Federal Reserve to aggressively increase interest rates during its next two meetings and that 0.5 percent at each meeting may be on the cards. US shares ended last week lower, mostly due to a sell-off on Friday, on the back of the job-data and fears for another rate hike by the Fed. The Dow Jones Industrial index lost 1 percent over last week, (9.5 percent down year-to-date) the S&P500 was down by 1.8 percent (13.8 percent year to date), and the Nasdaq lost another 1 percent and is now down 21.8 percent since the beginning of the year.
This as US inflation accelerated sharply over the last year and almost doubled from 4.2 percent a year ago to 8.4 percent in April 2022. Against this US economic growth was negative during quarter one and suggest that another negative quarter will push the world’s largest economy into a recession.
This coming week investors and analysts will turn their attention to the publishing of South Africa’s gross domestic product (GDP) growth for the first quarter 2022 on Tuesday. It is expected that economic activity had increased in real terms by 2.3 percent, against the 1.7 percent during quarter four 2021. The main reason will be again expected high growth in the mining and agriculture sectors. This figure should favour share prices and the rand. Statistics South Africa will release the manufacturing and mining production data for April on Thursday.
On global markets attention will shifts towards the announcement of the GDP growth data for the European Union (EU) on Wednesday. It is expected that the EU had grown by only 0.3 percent during quarter one and is on the brink of a recession. The European Central Bank will also announce its interest rate decision on Thursday. Some developing countries will also release their inflation rates for May like the US, China, Brazil, and Russia. Japan will also publish its GDP growth rate for quarter one.
Chris Harmse is an economist of CH Economics and lecturer at the School of Commerce at the Stadio University.
BUSINESS REPORT