Friday’s gains help the JSE recoup some losses
STOCK prices on the JSE were on the receiving end most of last week only to make a strong comeback on Friday.
The all share index, on the back of a strong surge in US treasury rates since March 11 driven by renewed inflation fears and interest rate hikes, lost 3 426 points, or 5 percent up to Thursday’s close of 64 783 points. This was the all share’s biggest fall since March last year after the lockdown was introduced.
Despite the announcement by the Federal Reserve last week that it did not sees that US interest rates increasing soon and that an inflation spiral was also not forecast, bond rates in the US climbed sharply, strengthening the dollar, and led to a sharp decrease in oil prices. This has led to a huge sell-off of risky assets in emerging countries and caused equity prices on the JSE to fall significantly.
The US Fed expects that inflation will be contained just above its target of 2 percent. The Fed welcomed the rise in market interest rates as it was an indication that the US economy was recovering.
The fact that several millions of US citizens have already been vaccinated against the corona virus is helping lift the dollar.
South Africa’s inflation rate for February came out at 2.9 percent, less than the lower target limit of 3 percent. Although the SA Reserve Bank Governor Lesetja Kganyago on Thursday said that the monetary policy committee (MPC) vote to keep the repo rate unchanged at 3.5 percent, it was still worried on the downside risks for inflation due to an expected strong increase in administrative prices (electricity and water), fuel and food prices.
The MPC believes that the repo rate may even increase later in the year. The implied policy rate path of the Quarterly Projection Model (QPM) indicates an increase of 25 basis points in each of the second and fourth quarters of 2021.
The lower inflation rate and no change to interest rates, restored some positive sentiment on the JSE on Friday. Together with a bullish sentiment on Wall Street, rising oil prices, a weaker dollar and a surge in optimism as volatility risk premia declined on Friday, equities on the JSE had one of its best days this year. Share prices recovered strongly and most indices ended the week much higher. There was especially a big appetite for resources during the day.
Despite the negative sentiment on the JSE for most of last week, the all share index ended Friday on 66 834 points. This was 3.16 percent higher for the day and up by 1.4 percent up for the week, after its strongest decline since March 2020 the previous week.
Resources had the biggest increase on Friday as the Resources 10 index surged 5 percent and ended the week higher by 2 percent. Industrials also had a field day on Friday, climbing 2.3 percent to end the week 1.5 percent higher.
The stronger dollar for most of last week contributed to the rand losing ground from the previous week.
Against the dollar, the rand was down by 30 cents, or 2 percent, at R15.01 on Friday evening. Against the pound, the currency also gave up 30c to trade Friday on R20.70 and lost 20c against the euro to R17.70.
It is still expected that fuel prices will increase sharply at the beginning of
April. On Friday the under recovery on petrol was 75c a litre and 43c on diesel. Given the increase of the fuel levy and UIF levy in April, one can expect the price of petrol to increase by 102c a litre and diesel by 70c on April 7.
The Reserve Bank will announce the latest credit extension figures to the private sector by the banks, as well as the growth in M3 money supply tomorrow. On Thursday ABSA will release its purchasing managers index for March and the total new vehicle sales for the same month will also be published.
Globally, analysts and investors will await the latest unemployment rate and retail sales data for Japan. Germany will also release its unemployment numbers. On Friday the USD job data for March will be released.