Despite the domestic political and economic turmoil, South African markets experienced a second consecutive week of strong positive movements.
On the JSE, the ALSI broke new record day close levels on three occasions. The index ended the week on 79 333 and had moved through the 78 000 and 79 000 levels for the first time. The ALSI gained 3.2% last week and is now already 8.60% higher since the beginning of 2023.
Despite the devastating effects of load shedding on manufacturing, the All Share Industrial index improved by 4.90% over the last seven days and remains positive for the year so far. The resources 10 index gained a massive 8.06% over the last seven trading days and is now 11.03% higher for the year-to-date.
The strong increase in commodity and metal prices, despite a stronger rand, contributes to this sharp increase. The gold price shot up last week by $26 per ounce, closing Friday well above the $1900 mark on $19913, platinum again moves sideways as its price varied between $1061 and $1062 over the last week.
The rand had appreciated from R17,12/$ the previous Friday to R16.83/$ at the close of the JSE on Friday.
Against both the pound (R20.54) and the euro (R18.20), the rand remains steady. The steady but strong decline in the US inflation rate contributes towards a weaker dollar as analysts are expecting that the FED is likely to raise interest rates at a slower pace.
The US inflation rate came down in December 2023 to 6.5%. The rate is now the lowest since October 2021 and had decreased for a sixth consecutive month. The US inflation rate, however, remains more than three times above the Fed’s 2.0% target.
The much slower increase in energy, fuel and gas prices continue to contribute to a lower increase in the CPI. On Wall Street, share prices are also recovering and is back into positive territory for the year so far.
The Dow Jones, Industrial index gained 3.5% since the beginning of the year and ended Friday 1.6% higher for the week. The S& P500 increased by 2.67% over the last five days and is now trading 4.2% higher for the year-to-date. The tech heavy Nasdaq index improved by 4.8% last week and is trading 5.85% higher since January 2, 2023.
Equities are discounting a more dovish approach by the Fed at their next meeting at the end of the month (31 Jan-1 Feb)
On the economic front domestically, the announcement by Nersa that it has approved a 18.65% was mostly a shock to analysts, economists, and the public. Although the power utility had asked for a 32% increase, the almost three-times higher than the current inflation rate, together with the persistent level 6 load-shedding levels, indicates the effects of state capture, cadre deployment, looting, sabotage, and mismanagement at the SOE that the consumers of electricity now must pay for.
President Ramaphosa in a statement on Thursday said that he could not interfere in a “statutory process,” once again indicating that there is no intention to stop the misuse of government funds. Another indication of the turmoil of loadshedding on the economy was the announcement last week that South Africa’s manufacturing production had fallen by 1.1% against a 1.0% increase the previous month (year-on-year).
It was also the first time in five months that factory production had declined on an annual basis.
This coming week markets will await the release of the latest inflation rate (Dec) and retail sales (Nov) numbers by STATSSA on Wednesday. STATSSA will also announce the latest mining production figures (Nov) on Tuesday.
On global markets investors will evaluate the release of the US retail sales data for December on Wednesday. The UK, EU, Canada, and Japan will announce their latest inflation rates (January) during the week. The publishing of the US latest building permits awarded, oil and gas reserves and jobless claim data will also draw attention.
* Chris Harmse is the consulting economist of Sequoia Capital Management
BUSINESS REPORT