SA markets generally under pressure after Sona

SOUTH African share, bond and foreign exchange markets ended Friday in negative territory.

It remains unclear if President Cyril Ramaphosa’s State of the Nation Address (Sona) last week, as well as the efforts of the EFF to prevent him from delivering his speech, had meaningful effect on the bearish movements on the markets on Friday.

The rand started to weaken even before the Sona, but accelerated its depreciation, while the president was speaking, weakening from R17.60 to the dollar at the close of markets on Thursday to R17.78 just after the speech.

The rand ended the week on R17.89 against the dollar at the close of the JSE on Friday. This was 90 cents weaker than the R17.09 seven days before on February 2. The currency already started to move weaker the previous Friday to R17.49 after the US non-farm payrolls were announced.

The US job report showed that US unemployment rate came down in January to 3.4%, the lowest since 1969. These data sparked sentiment that US inflation rate would likely stay higher for longer as wage growth continues to stay high. Markets anticipated for the rest of last week that the US Federal Reserve would likely continue to hike its repo rate.

In reaction the dollar has strengthened against the euro to levels stronger than $1.07 and most emerging currencies like the rand have moved much weaker. Therefore, it remains difficult to evaluate that the rand depreciation last week was due to the Sona, although the currency lost 17c against the dollar, 29c against the pound and 16c against the euro on Friday alone.

Bond rates on the JSE in line with the weaker rand, also experienced a much negative week. The R186 short duration bond lost 1.15% on Friday.

On the JSE, equities had a bad day on Friday. Once again it is difficult to attribute their movement directly to the Sona, although one can deduct that it played a role.

The all share index traded lower on Friday by 1.3 % (1 036 points). The index is now down by 1.6% over the past seven trading days. The Top40 index lost 1.4% on Friday and traded down by 0.6% the past seven days.

One, therefore, may evaluate that the Sona had the largest part to play in this lost. But then again, given the negative sentiment around the US job report, released the previous Friday, the US Federal Reserve chairperson Jerome Powell’s speech at a news conference in Washington last Tuesday cautioned that further interest rate increases were still likely.

“If we were to get, for example, strong labour market reports or higher inflation reports, it may well be the case that we have to do more and raise rates more than is priced in,” said Powell.

In contrast to most share markets across the world, US equities posting gains the latter part of last week, despite Powell’s remarks. US stock markets interprets his remarks that the US “disinflationary process has started” as dovish and equities were back in demand again.

Share markets around the globe, just like the JSE were down. On Friday, the S&P BMI index lost more than 1% and traded down for the week by 2.15%. The S&P global BMI index lost 0.38% on Friday, down 1.6% since the US job report the previous Friday.

In the UK, the FTSE 100 lost 0.36% on Friday, the German DAX fell 1.4% and also in line with the JSE, the Hang Seng index traded lower by 2.01% and the Australian Alsi by 0.84%.

Given the uncertainty around global and local equities, bonds and exchange rates, the release of economic indicators this week will be crucial.