Strong economic data boost markets

FTSE/JSE Africa Index Series

SHARE prices on the JSE recovered last week as better-than-expected domestic and global economic data brought positive and more risk taking sentiment to the market. This to a great extent counteracted negative domestic political events over the last few weeks. In the same manner the rand exchange rate appreciated against most currencies, while bond rates stabilised and property shares improved noticeably.

The Alsi on the JSE ended the week 482 points or 0.9 percent higher and is now 1.8 percent higher since the beginning of the year. Financials shares recorded the biggest gain as the index increased by 2.2 percent on the back of the stronger rand and lower-than-expected inflation figure. Industrials remained largely flat, gaining only 0.02 percent, but resources recovered in the week and increased by 1.7 percent. Listed property shares also turned around last week as the listed property index improved by 2.6 percent.

The main reason for

Sthe strong improvement in financial markets last week was the economic growth rate of 6.7 percent recorded by China during the third quarter. This growth rate was in line with expectations and also within the Chinese government’s target of between 6.5 percent and 7 percent. The strong retail sales growth of more than 10 percent is a bit worrying but the increase in fixed-asset investments to 8.2 percent boosted market sentiment.

The news that the US inflation rate has increased to 1.5 percent during September, up from 1.1 percent recorded in August, was also in line with expectations and reaffirmed that an increase in interest rates by the Federal Reserve in November was unlikely.

Analysts also feel that the expected increase in US rates in December is already discounted in, although the currency moved stronger against most developed market currencies during the week. These developments, together with better-than-expected company earnings in the US boosted share prices on Wall Street during the first half of last week.

The negative outlook on the economy and industrial sales by General Electric,

Showever, dampened share prices early on Friday morning.

The announcement by the European Central Bank not to increase interest rates on Thursday also boosted European shares.

On the domestic front, the news that South Africa’s inflation rate increased to 6.1 percent in September was also lower than expectations of 6.2 percent. This number, therefore, lowers the chances of an increase in the repo rate by the Monetary Policy Committee at their next meeting.

Although retail sales rose by just 0.2 percent in August, the upwardly revised 1.2 percent gain in July is of note. It is, therefore, expected that retail sales during the third quarter may come in above 1 percent. This in turn will support the Finance Minister Pravin Gordhan’s budget estimate that the South African economy can grow by 0.9 percent this year.

The rand traded at the close of the JSE last Friday on R14.01 or 21 cents stronger (1.50 percent) against the dollar over the week, at R17.07 against the pound (1.3 percent stronger) and 2.6 percent stronger at R15.23 against the euro.

SThis Week

This coming week financial markets will concentrate on the release of South Africa’s production price inflation data (PPI) for September on Wednesday.

Globally, all eyes will be on the release of the UK’s gross domestic product economic growth rate during the third quarter and the manufacturing Purchases Managers Indices (PMIs) of various developed market economies. Japan’s balance of trade data for September, as well as its inflation and unemployment rates, will also be important.

Noticeable data for the US this week will be the economic growth data during the third quarter, consumer confidence index, house price index, trade balance, jobless claims data and oil and gas reserves and durable goods sales.

The fuel price

The average under recovery for the period 30/09/2016 – 20/10/2016 was: Petrol 95: 47 cents per litre; Petrol 93: 47 cents per litre; Diesel: 65 cents per litre. Under recovery means the fuel price should increase during the first week of November 2016.