Financial markets moved mostly negative last week after three consecutive weeks of recovery.
The annual inflation rate in the UK had increased by more than 10 percent in July (over last year July). This is the highest inflation rate since February 1982 and above expectations of 9.8 percent and much higher than the 9.4 percent recorded for June 2022.
In the US the release of the Federal Open Market Committee’s minutes of its July meeting also caused nervousness around risky assets like bonds and equities. Although analysts, at first, after the release of the minutes on Thursday reacted positively as they evaluated the report as “dovish”.
This means that the Fed’s aggressive interest rate hikes during the last two meetings at 0.75 percent per meeting are about to subside at their next meeting. However, market sentiment changed quickly and equity prices across the world started to move weaker last Thursday and Friday.
Emerging markets currencies suffered the most, as the dollar continues to appreciate and the US is seen as a safe haven against inflation risks. This after the US inflation rate slowed more than expected in July to 8.5 percent, down from the 9.1% rate recorded in June.
It seems that the events around Governor of the Reserve Bank Lesetja Kganyago’s appearance in front of the Standing Committee on Finance around foreign exchange control measures violated by President Cyril Ramaphosa, as well as accusations of sexual harassment by the Minister of Finance Enoch Godongwana, currently have no effects on equity prices, as well as the rand exchange rate.
The JSE and the rand exchange rate moved mostly in line with global markets and emerging market currencies in reaction to inflation concerns and interest rate predictions.
The rand exchange rate depreciated strongly since last Wednesday and closed Friday on its worst levels for the month.
Against the US dollar the currency lost 84 cents last week from its strongest level in weeks of R16.17 the previous Friday to R17.02 late on Friday afternoon. Against the pound the rand closed Friday on R20.12, against the R19.62 the previous Friday, and against the euro, the rand lost 60 cents last week to R17.06.
The weaker rand also has a negative effect on the petrol price for September as Brent oil stabilised on its current level of $97 (R1 628) per barrel. By last Thursday the over recovering in the petrol price was down to R2.49 per litre from R2.67 per litre the previous week.
The currency, however, recovered strongly over the weekend as the market had overreacted last week. On Friday evening at the close in New York, the rand appreciated strongly, despite a stronger dollar against other currencies. The rand closed on stronger levels of R16.36/$, R19.77 against the pound and R16.62 against the euro.
Equity prices came under strain last Thursday and Friday. On Wall Street the Dow Jones Industrial index lost more than 1 percent last Thursday and Friday, ending 0.5 percent down for the week. The S&P500 index decreased by 1.4 percent last Thursday and Friday and closed 1.6 percent lower for the week on Friday.
On the JSE, the all share index also lost considerably last Thursday. The index closed Friday on 69 719 points. This is a 2.5 percent drop in two days and the index lost 1.4 percent over the week.
This coming week the release of South Africa’s unemployment rate for the second quarter of 2022 on Tuesday will draw attention. The market expected that the jobless rate had increased from 34.5 percent in quarter one to 35 percent in quarter two.
South Africa’s inflation rate for July will be announced by Statistics South Africa on Wednesday. It is expected that the change in the consumer price index had increased from 7.1 percent in June to 7.7 percent in July. The producer price inflation will be published on Thursday.
On global markets, the release of the US’s second estimate of its gross domestic product economic growth rate on Thursday will be the key indicator this week.
It is expected that the number will confirm that the US is technically in a recession as it is expected that the estimate will indicate a - 0.8 percent decrease in economic activity. The US will also publish its latest sales of durable goods and services, its personal income and expenditure data as well as its home sales data for July. Attention will also shift to the speech by the Federal Reserve chair Jerome Powell on Friday.
Chris Harmse is an economist at CH Economics and lecturer at the School of Commerce at Stadio University.
BUSINESS REPORT