The Star Late Edition

Middle East conflict, Covid-19 weigh on markets

- DR CHRIS HARMSE Dr Chris Harmse: Economist at S3 Capital Financial Planners

EQUITY prices on most stock exchanges around the globe traded lower last week as the rising Covid-19 infections in India and the Middle East conflict between Israel and Syria/ Palestine created uncertaint­y among investors.

On the economic front, more inflation fears on a global scale fueled worries over rising interest rates. As a result world financial markets had their biggest retreat in 11 weeks. On Friday, however, US equities started to rise and treasury yields declined.

Tech-heavy stock in the US continued its bruising streak as the Nasdaq experience­d its fourth consecutiv­e weekly decline, despite the rebound on Friday.

The index had lost almost 5 percent since its record high Friday close of 14 052 points on April 16.

On Friday afternoon local time, the Dow Jones industrial Index had lost 1.4 percent, and the SP 500 index was down 1.6 percent over last week.

Better-than-expected US retail data and other economic indicators pointing towards global economic rebound on Friday seem to override an expected negative side effects of inflation as equities worldwide recovered.

Locally, sentiment on the equity and bond markets also improved somewhat on Friday, after a disastrous Thursday, as South African manufactur­ing data brought some welcome relieve.

Manufactur­ing production rose 4.6 percent year-on-year in March. This is much higher than the upwardly revised 2.5 percent decline in February, and well above market expectatio­ns of a 0.45 percent increase. This strong rebound in factory output was the strongest since April of 2019.

Commodity and metal prices also recovered somewhat on Friday. The Gold price on Friday afternoon was up by $10 (about R141) at $1 841, or $7 higher than the previous Friday.

Platinum, however, on the back of the Covid-19 calamity in India, traded the week $25 lower at $1 227 an ounce.

Stock prices on the JSE had a devastatin­g first four days last week and despite the rebound on Friday, ended the week way down. The all share index traded 1 997 points, or 2.8 percent, lower than the close the previous Friday.

The Resources 10 index ended the week 2.9 percent down. Industrial shares were hit the hardest, with the Industrial 25 losing 4.1 percent during the week. Financials traded down 0.2 percent, helped by a steady rand, while listed property shares lost 0.6 percent.

Despite the geopolitic­al turmoil in the Middle-East, further worries on world inflation and the sell-off of equities and bonds, the rand held its relatively strong levels last week.

Against the dollar, the rand lost only 6 cents to trade at R14.12 late on Friday. Against the pound, the currency traded weaker by 22c over the week at R19.90 and against the euro, the unit lost 4c on the previous Friday to R17.13.

This week the monetary policy committee (MPC) of the Reserve Bank will start their two-monthly meeting on Tuesday.

StatsSA will release the inflation rate for April on Wednesday. It is forecast that rate has jumped to 4.2 percent against the 3.2 percent recorded for March. This would have a negative effect on the exchange rate, bonds and equity prices. The market will therefore await the interest rate decision of the MPC on Thursday.

Although it is expected that the repo rate will remain at 3.5 percent, the MPC may warn of possible increases later this year.

Globally, investors and analysts will concentrat­e on the release of the US FOMC meeting minutes on Wednesday, as well as the various US purchasing managers indices (PMI) data and home sales numbers. Most of the other developed economies will publish their PMIs, inflation rate data and latest retail sales.

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