Pleas­ant sur­prise for fi­nan­cial mar­kets

The Star Early Edition - - PRICES - Dr Chris Harmse Chief econ­o­mist Re­bal­ance Fund Man­agers

THE TES­TI­MONY of the US Fed­eral Re­serve (Fed) chair­per­son Janet Yellen on mon­e­tary pol­icy in front of the US congress last week pleas­antly sur­prised fi­nan­cial mar­kets.

Yellen said the Fed was puz­zled by the slow­down in global in­fla­tion. She tes­ti­fied that it seemed slug­gish price rises had struc­tural causes. As a re­sult, the Fed would have to be cau­tious be­fore in­creas­ing in­ter­est rates. She, how­ever, in­di­cated that it was still likely to hap­pen but only grad­u­ally.

This tes­ti­mony, as well as the lower-than-ex­pected US in­fla­tion data of 1.8 per­cent in June had a neg­a­tive ef­fect on the dol­lar and boosted the buy­ing of emerg­ing mar­ket shares and bonds.

Re­tail sales in the US also un­ex­pect­edly dropped for a sec­ond month in June, sug­gest­ing a smaller-than-ex­pected re­bound in eco­nomic growth. This also sup­ports US in­ter­est rates to be placed on hold for the time be­ing. Con­se­quently, US stocks and bonds ral­lied strongly last week.

Lo­cally, a re­turn to South African shares and bonds by for­eign in­vestors contributed to one of the best per­form­ing weeks on the fi­nan­cial mar­kets this year. The rand re­turned to stronger lev­els and com­mod­ity prices also ex­pe­ri­enced a rally at the close last week. The gold price in­creased on Fri­day by $11.50 (R151) to $1 228 an ounce and plat­inum was up $14.67 to $917 an ounce.

The rand ap­pre­ci­ated by 35 cents (2.6 per­cent) against the dol­lar last week and traded at R13.04 just af­ter the close of the JSE on Fri­day. Against the pound, the rand gained 27c over the week (1.6 per­cent), trad­ing at R17.01 at the close of the JSE on Fri­day. It was 36c (2.4 per­cent) stronger against the euro over the week at R14.92 on Fri­day evening.

The all share index gained al­most 1 600 points (3.3 per­cent) last week to close at 53 598 points on Fri­day. The index is now 5.8 per­cent higher since the be­gin­ning of the year (year to date).

Over the week, the in­dus­trial index gained 3.6 per­cent and is now 11.3 per­cent higher for the year to date. Fi­nan­cials also im­proved last week, up 2.8 per­cent, while re­sources had gained 3.2 per­cent.

The listed prop­erty index ad­vanced 2.4 per­cent.

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