Shares, bonds continue to rally: More to come?

SOUTH African equities and bonds continued their rally last week and were pushed to even better levels last Thursday with the news that the US inflation rate came in way below expectations on 7.7% for October, down from 8.2%, and below forecast of 8%.

The all share index on the JSE ended the week 5.3% higher. During the first four days of the week, and before the announcement of the steep decline in US inflation rate, the all share already had improved by 2.02%, due to higher prices for gold and platinum.

Gold bullion increased rapidly with $77 (about R1 325) last Monday 5pm and on Thursday, November 10, trading on $1 751 an ounce.

Platinum had increased over the same four days with $74 an ounce to $1 031 at 5pm, before the inflation news from the US.

In the process the Resources 10 index shot up by 4.4%. At the close on Friday, the gold price ended $13 (0.8%) up for the day on $1 763, while platinum ended the day up higher with another $8 on $1 039 an ounce.

On Friday alone, the all share index improved 3.1% (2 273 points) and the Resources 10 index shot up 4.05%.

On the bond market, bond returns also improved strongly last week.

On the JSE, the All-Bond Index (Albi) at the end of October 2022 already recorded almost a double over a year period.

The current yield for one to three years duration bonds was 10.03%, three to seven years recorded 9.89%, seven to 12 years 9.57% and 12 and more years 11.2%. The current yield for the Albi was 10.45%. Last week the Government 10-year bond index improved by 4% and is now 10.9% up for the year-to- date.

It is predicted by various researchers and analysts that the prices for gold and platinum will continue to rise over the next six months, as the Federal Reserve (Fed) of the US will continue to increase interest rates, although at lower levels.

It is expected that the gold price will reach levels higher than $1 800 an ounce by the end of December 2022.

It is also expected that due to less stringent Covid-19 regulations in China, the Hong Kong and Shanghai share indices will continue to recover. This will also have a positive effect on commodity prices and dual listed commodity and metal shares on the JSE.

In the US, the economy remains strong, especially after it added another 261 000 jobs in October.

This was well ahead of expectations of 200 000. This, despite the Fed’s efforts to decrease the demand for labour, which is pushing up wages, which in turn, feeds into higher prices.

Economists are analysing that the Fed can continue to increase interest rates, without pushing the economy into a recession.

The rand exchange rate improved strongly last week. Against the US dollar the currency appreciated by 66 cents over the past seven days, from R17.91 to the dollar to R17.25 on Saturday.

The rand moved flat against the British pound on R20.39, as well as against the euro on R17.87, indicating that the dollar lost ground, especially after the release of the inflation rate on Thursday.

According to the Central Energy Fund, the price for diesel was over-recovered by 7c per litre on Thursday, meaning that the price is likely to come down at the beginning of December, as the rand appreciated, and the price of refined diesel had also decreased marginally over the past 12 days. The price for 95 petrol, however, is still 120c a litre under-recovered.

This week, the release of South Africa’s retail sales for September will draw attention. It is expected that the sales at the tills had increased by 1.7% year-on-year, against the 2% recorded during August 2022.