South African financial markets are bullish. The All Share Index on the JSE hit 84 600 points in intraday trading on Friday, while the gold price soared to $2 533 (R44 859) an ounce in intraday trading on Tuesday – reaching new record highs.
This as the rand/dollar exchange rate recorded its lowest level on Friday, at R17.70 to the dollar, since February 9, 2023. Brent crude oil dropped to $77.12 per barrel on Tuesday – the lowest level since December 2022.
Markets were strongly supported by the news that the South African inflation rate came down to 4.6% in July, the lowest since July 2021. This rate is now very near to the mid-point target of 4.5% set by the South African Monetary Policy Committee.
The speech on Friday by Federal Reserve chairperson Jerome Powell indicating that the federal Open Market Commission (FOMC) is about to lower the Fed Bank rate at their next meeting pushed South African financial markets to these record levels at the close. It is now almost sure that the MPC will follow the FOMC in cutting its repo rate in September.
The All Share Index at the close on Friday gained 2.0% over the past five days, and is now trading 11% higher since the year to date. The financial board (FIN15) is up by 3.1% over the week, trading 16.74% stronger than the beginning of the year. This index is a very good proxy for the “domestic” share market, showing the positive sentiment towards expected improved domestic economic and geopolitical expectations. The All Share Industrial index shot up by 2.7% over the week and trades 12.5% higher for the year to date.
The South African economy appears set to receive a double positive whammy in September. Besides the expected lowering of the repo rate (followed by an expected cut in the lending rates by banks), it is expected that the price for both diesel and petrol will decrease by more than 100 cents a litre. The expected effect on consumers’ disposable income and retail sales during the five months to the end of December is expected to contribute to the economy growing stronger than 2% during the second part of 2024, and the annual growth rate may reach 1.8%.
South Africa’s retail sales increased by 4.1% year-on-year in June 2024, following an upwardly revised 1.1% rise in May 2024. This is the fourth consecutive month of increases in sales at retail shops, and the strongest annual advancement since July 2022.
This coming week, investors will await the release, on Friday, of government’s primary budget balance for July. The primary budget balance measures national government’s total income minus total expenditure, before interest on its total debt. In June, the basic budget balance recorded a surplus of R38 billion. Markets expect the basic balance will fall back to a deficit of R150 billion in July.
StatsSA will release the country’s trade balance for July 2023 on Friday. It is expected that the country recorded a positive trade balance of R20bn over the month. StatsSA will also announce the production price inflation rate (PPI) for July on Thursday. It is expected that prices at the factory gate would increase by the 4.3% over a year ago in July, against the annual growth rate of 4.6% in June.
On global markets, the US will announce its second estimated growth in its gross domestic product on Thursday. It is expected that the world’s biggest economy had grown by 2.2% during the second quarter of this year.
On Friday, the US will release its latest personal income and spending data. It is expected that personal income would increase by 0.2% in July, but personal spending had shot up by 0.5% during the month of July. This will indicate that the US economy is unlikely to move towards a recession.
The US will also publish its core personal expenditure price index (CPE) for July. It is expected this has increased by 2.6% over the past year, and will indicate the US inflation rate is moving towards its target of 2.0%.
Chris Harmse is the consulting economist of Sequoia Capital Management and a senior lecturer at Stadio Higher Education.
BUSINESS REPORT