SA politics and US jobs report weigh on markets

DURING the first part of last week, South African equities, bonds and the rand continued to recover strongly.

The all share index gained another 2.9% during the first three days of trade and ended the month 12.3% in the green, the strongest monthly rise since the lifting of the covid-19 restrictions.

The decrease in South Africa’s unemployment rate to 32.9% during the third quarter of this year, from 33.9% during the second quarter and 34.9% in the first quarter, shows that the economy is likely to avoid an economic recession and is on its way to grow at 1.6% in 2022.

Together with the gold price touching the $1 800 (about R31 488) anounce and the rand dipping under R17 (R16.98) to the dollar, investors started to believe that the worst for South African financial markets was over.

Then step in the latest political saga with the news on Wednesday, after the close of financial markets, that a Section 89 panel found that President Cyril Ramaphosa potentially contravened the constitution and anti-corruption laws with the dealings at his Phala Phala farm.

Analysts, economists, political commentators, and the public started to believe that the president would resign before the end of the week.

The big losers on Thursday, as expected, were the rand that at one stage traded almost 90 cents weaker than Wednesday on R17.89 and bonds that lost more than 7%.

Financial shares, as a proxy for domestic sentiment, traded 6.15% lower for the day. The ANC’s National Executive Committee met briefly on Friday but no decision on the president was made, and the whole saga seemingly will only be addressed adequately at the ANC’s 55th national elective congress later this month.

These developments on Friday calmed the markets as the rand/dollar rate recovered by more than 50c to R17.34 at the opening of South African markets on Friday morning. Bonds also recovered gaining 2% on the day. Although most of the equities listed on the JSE started Friday nervously with prices only marginally lower, they turned around and started to move negatively since midday on Friday in anticipation of the announcement of the US non-farm payrolls.

The US Labour Department announced that the US economy created 263 000 new jobs during November. This is was much higher than the 200 000 new jobs that the market expected and led to a swing in market sentiment.

Equities were sold off and on Friday alone the all share index lost almost 1%. The jobs data had swung sentiment towards another hike of 75 basis points in the US Federal Reserve repo rate rate at their meeting on December 14.

This week the SA Reserve Bank will publish its quarterly bulletin for December on Thursday. The bank will indicate in its report the current account balance. It is expected that the current account recorded a deficit of R140 billion during the third quarter.

Also on Thursday, StatsSA will release the manufacturing production numbers for October.

On the global markets, investors await the release of various Purchasers Managers Indices (PMIs) for various countries. A number of developed countries will announce their trade balance figures during the week. The central banks of Australia, India and Canada will determine their latest interest rate decisions.