South African financial markets kicked off the week as a mixed bag on the back of heightened risks to the global economic outlook, including the prospect of further rate hikes by central banks and political instability in Russia.
The JSE All Share index was 0.19% lower around 74 265 index points yesterday, extending last week's sharp losses to 4.7% over the course of seven days.
Market sentiment has been affected by the sudden military tensions that erupted in Russia, resulting in the temporary capture of the city of Rostov-On-Don and the immediate cancellation of public events.
Over the weekend, Russian President Vladimir Putin had to deal with a short-lived mutiny led by Yevgeny Prigozhin, the leader of the mercenary Wagner Group, threatening to end Putin’s 23-year grip on power.
Some analysts see the aborted mutiny in Russia as underscoring weaknesses in the Putin regime, illustrating that there were probably a range of ways this conflict could end sooner than previously thought.
However, Old Mutual Wealth investment strategist Izak Odendaal said the full story of what happened in Russia over the weekend and how it would play out in the days, weeks and months ahead was not known at this point.
Odendaal said his rule of thumb for such events was that people often overestimate the short-term impact, while underestimating the long-term effects.
“The chaotic collapse of a nuclear-armed regime would not have been good for global markets, so in that narrow sense, the return of calm inside Russia is positive,” Odendaal said.
“The movement in the oil price has therefore been relatively muted all things considered, only about 1% higher today. Equity markets are mixed, but mostly lower.
“In other words, markets are largely shrugging off the events of the weekend. The bigger driver at the moment is the outlook for inflation and interest rates.”
Oil prices fluctuated during early Monday trading, and rose 0.2% to $73.95 (R1384) per barrel in the afternoon as the markets considered the potential impact of the weekend’s putsch in Russia.
ActivTrades senior analyst Ricardo Evangelista said traders were pricing in the possible repercussions of further political instability in Russia, the world’s third largest oil producer.
Evangelista said despite the apparent resolution of the short-lived insurrection, many question marks remained, with the potential for further trouble, which could disrupt Russian oil supply.
“However, such concerns weren’t enough to support prices for long. As the European trading session got underway, crude prices entered the red,” he said.
“The bigger picture, which includes assertive monetary tightening by Western central banks and a subdued economic recovery in China, continues to generate apprehension over future demand, capping the upside created by the disturbances in Russia.”
Meanwhile, the rand remained firm yesterday at around R18.60 against the US dollar though sentiment has slid somewhat as markets reassess risk, amid persistent concerns surrounding China's economy.
Investec chief economist Annabel Bishop said the markets were jittery, as the US delivered a veiled message over rates, while geo-political risks from the Russia-Ukraine conflict persist, and worries and uncertainty still abound over the potential for an US recession later in the year.
Bishop said as both an emerging market and commodity currency, the rand was negatively affected by rising uncertainty in global financial markets, which in turn tends to result in US dollar strength due to an attraction to safe haven investments.
“The rand is likely to remain volatile, influenced by global events more heavily currently, as lower load shedding stages and President Ramaphosa’s recent efforts to strike a more neutral balance in global geopolitics have been overshadowed,” Bishop said.
“South Africa also tends to see more rand sensitivity over the northern hemisphere summer months, which tend to be more risk averse for market sentiment as market players tend to reduce risk taking positions in order to go on vacation.”
BUSINESS REPORT