South African share, bond and foreign exchange markets ended Friday negatively. The question remains if the president’s State of the Nation Address (Sona) last week, as well as the efforts of the EFF to prevent him from delivering his speech, had any effect on the bearish movements on Friday.
The rand/exchange rate definitively started to move weaker even before the Sona, but accelerated its depreciation, while the president was speaking, weakening from R17.60 to the dollar at the close of markets on Thursday to R17.78 just after the speech.
The rand ended the week on R17.89 against the dollar at the close of the JSE on Friday. This is 90 cents weaker than the R17.09 seven days before on February 2. The currency already started to move weaker the previous Friday to R17.49 after the US non-farm payrolls were announced.
The US job report shows that US unemployment rate came down in January to 3.4%, the lowest since 1969. These data sparked sentiment that US inflation rate will stay higher for longer as wage growth continue to stay high. Markets anticipated for the rest of last week that the US Federal Reserve will likely continue to hike its repo rate.
In reaction the dollar has strengthened against the euro to levels stronger than $1.07 and most emerging currencies like the rand moved much weaker. Therefore, it remains difficult to evaluate that the rand depreciation last week was due to the Sona, although the currency lost 17 cents against the dollar, 29 cents against the pound and 16 cents against the euro on Friday alone.
Bond rates on the JSE in line with the weaker rand, also experienced a much negative week last week. The R186 short duration bond lost 1.15% on Friday.
On the JSE, equities had a bad day on Friday. Once again it is difficult to attribute their movement directly to the Sona, although one can deduct that it played a roll.
The all share index traded down on Friday by -1.3 % (1 036 points). The index is now down by 1.6% over the past seven trading days. The Top40 index lost 1.4% on Friday and traded down by 0.6% the past seven days.
One, therefore, may evaluate that the Sona had the largest part to play in this lost. But then again, given the negative sentiment around the US job report, released the previous Friday, the Fed chairperson Jerome Powell’s speech at a news conference in Washington last Tuesday cautioned that further interest rate increases are still likely.
He said, “If we were to get, for example, strong labour market reports or higher inflation reports, it may well be the case that we have to do more and raise rates more than is priced in.”
In contrast to most share markets across the world, US equities posting gains the latter part of last week, despite Powell’s remarks. US stock markets evaluates his remarks that the US “disinflationary process has started” as dovish and equities got in demand again.
Share markets around the globe, just like the JSE were down. On Friday, the S&P BMI index lost more than 1.0% and traded down for the week by 2.15%. The S&P global BMI index was down on Friday by 0.38%, losing 1.6% since the US job report released the previous Friday. In the UK, the FTSE 100 lost 0.36% on Friday, the German DAX decreased 1.4% and also in line with the JSE, the Hang Seng index traded lower by -2.01% and the Australian ALSI by - 0.84%.
Given the uncertainty around global and local equities, bonds and exchange rates, the release of economic indicators this week will be crucial. Statistics SA (StatsSA) will publish the inflation rate for January on Wednesday. Given the lower fuel prices in January it is expected that the CPI had increased by 6.9% against 7.2% in December 2022. StatsSA will also announce the retail numbers for December 2022 on Wednesday. It is expected that the y-o-y rate came down from 0.4% in November 2022 to 0.2% in December 2022.
All eyes, however, this coming week will be on the release of the US inflation rate on Tuesday and its retail sales on Wednesday. It is expected that the US inflation rate came down from 6.5% in December 2022 to 6.2% in January 2023. If the rate is lower, then shares and bonds will rally. It is expected that US retail sales had increased by 1.6% in January against the -1.1% negative number in December. This will indicate that the US economy is still strong and may avoid a recession.
This also can put oil on the fire for even higher US interest rates, especially if the inflation number is higher than expected. Elsewhere around the globe, the UK will release its inflation rate for January on Wednesday, and ECB President Christine Lagarde will deliver her speech on EU monetary policy on Wednesday.
Chris Harmse is the consulting economist of Sequoia Capital Management.
BUSINESS REPORT