Rand maintains robust rally, stocks volatile
THE RAND once again recorded its strongest level over the last three years on Friday, as the currency tested the R13.44 to the dollar level. This was 30 cents stronger than the previous Friday and 100c firmer than at the end of April.
The rand now has appreciated against the dollar, pound and euro for four consecutive weeks. It tested the R19 level against the pound on Friday afternoon and traded at R16.37 against the euro.
Higher commodity prices, the phase 2 of the Covid-19 vaccination programme, the record high trade account surplus and expectations of a stronger economic growth rate above 4.2 percent for South Africa, all contributed to the bullish movement of the currency.
Equity prices on the other hand, however, were volatile, with large swings on a daily basis.
The all share index started last week on 67 554 points, rose 2.2 percent to a new record of 69 049 points last Wednesday, only to pull back again to 67 825 points at the close on Friday.
Most of the other indices on the JSE were also volatile and ended the week mostly flat.
The increase in the unemployment rate to a record high of 32.6 percent during the first quarter of 2021 contributed to some sell-off during the latter part of last week.
The stronger rand once again was not good news for resources and rand hedging industrials. The Resource 10 index ended the week only 0.4 percent higher, the industrial 25 index gained 0.5 percent, while financials traded higher by only 0.1 percent and listed property lost 1 percent.
Bond rates also remained flat with the R186 treasury increasing marginally from 7.26 percent to 7.3 percent during the week. .
In the US, the non-farm payrolls released on Friday showed that the economy added 559 000 new jobs in May and the unemployment rate decreased further to 5.8 percent. This level is now almost back to precovid-19 levels.
Fears have emerged that a labour shortage may hold back a strong US economic recovery. The increase is much higher than the 278 000 jobs that were created by the US economy in April. This strong surge in new employment is, as expected, due to the lifting of most of the pandemic restrictions and the large fiscal stimulus.
On Wall Street, shares remained strong with the Dow Jones industrial index ending the week 0.3 percent higher and is now trading 13.3 percent firmer since the beginning of the year.
This week, the announcement of the first quarter GDP economic growth rate for South Africa tomorrow will be the highlight anticipated development. After growing at 6.3 percent (quarter–on-quarter and annualised) in the fourth quarter of 2020, it is expected the economy posted a 3 percent growth during the first quarter of this year. On Thursday, StatsSA will publish the latest mining and manufacturing production figures.
Globally, investors and analysts will concentrate on the release of US inflation rate for May on Thursday as the rate had increased sharply in April to 4.2 percent. Expectations are that the increase in the consumer price index will come in at an even higher rate of 4.6 percent.
The EU and Japan will publish their GDP growth rates for the first quarter, tomorrow. The European Central Bank will announce its interest rate decision on Thursday. Most developed countries will also release their latest balance of trade data during the week.