Firmer rand, negative realities hit shares
SHARE prices on the JSE once again showed volatility as stocks last week moved lower, against the previous week’s increases.
Negative domestic political and economic realities outweighed better global economic prospects. The rand exchange rate, however, continued to move stronger, putting even more negative movements on rand hedges and has led to big uncertainty in share markets.
The better-than-expected economic growth rate in the US (2.9 percent) year-on-year during the third quarter of 2016 had a rather negative effect on South African share prices.
This healthy economic growth in the US points towards a definite increase in that country’s interest rates in December and has put pressure on especially financial shares. These expectations, together with fears of a possible downgrade of South Africa’s sovereign debt to junk status, after the minister of finance in his medium term budget policy statement downgraded the economic growth rate expectations from 0.9 percent to a mere 0.5 percent weighs negatively on share prices.
The uncertainty on the coming court case against Finance Minister Pravin Gordhan also contributes towards risk sentiment against shares.
The increase in fuel prices also contributed to higher inflation expectations and a possible increase in the repo rate by the Monetary Policy Committee by the end of the year, or early in 2017, fuels negative sentiment on the JSE.
The ALSI on the JSE ended the week 845 points or 1.6 percent lower. The index lost 2.2 percent since the beginning of the month. All the main sectors on the JSE were also sold off lost week and recorded losses.
Financials shares decreased by 1.1 percent, industrials lost 1.5 percent and resources traded down by 2.7 percent. Listed property shares also moved negatively and ended the week 1.6 percent lower.
The rand traded at the close of the JSE last Friday on R13.81 or 20 cents stronger (1.4 percent) against the dollar over the week, at R16.76 against the pound, 30c or 1.6 percent stronger and with 11c or 0.8 percent stronger against the euro. This Week This week, financial markets will concentrate on the release of South Africa’s trade balance, money supply and credit figures for September, today.
Tomorrow, the announcement of unemployment rate during the third quarter as well as the total new vehicle sales during October will be of high interest.
The publishing of the Barclays Manufacturing Purchasers Managers Index (PMI) for October, also tomorrow, and the Standard Bank PMI on Thursday, will also draw attention.
Globally, the US Federal Reserve interest rate decision on Wednesday will dominate market expectations. Although it is expected that the Fed will not increase its bank rate now, but rather in December, given the higher inflation rate in September and better-than-expected economic growth rate during the third quarter, will lead to a hawkish press release.
Most developed countries will also publish their latest PMI data for October. The release today of the US figures for personal income and spending during September will also be of note.
The unemployment rate during October in Germany, as well as the weekly jobless claims data and oil and gas reserves in the US, will also interest markets.
The fuel price The Central Energy Fund announced last Friday that the petrol price will increase by 45 cents a litre and the price for diesel by 63 cents a litre from Wednesday.