SA financial markets remain under pressure with fuel prices escalating

Chris Harmse is the consulting economist of Sequoia Capital Management.

Chris Harmse is the consulting economist of Sequoia Capital Management.

Published Mar 4, 2024


Domestic as well as global economic and political uncertainties continue to put South African financial markets under pressure.

Although most share prices on the JSE are undervalued, and metal and commodity prices in rand and dollar prices are strong, equity prices remain on the negative side.

On the JSE, the all share index traded down by 2.1% last week. The index has been down by 5.4% since the beginning of the year, after losing 2.3% in February.

The Industrial index traded down by 3.0% last week and has lost 1.3% in February and since the beginning of the year trading negatively by 2.2%.

The Resources 10 index lost 0.9% last week, tumbled by 6.9% during February and has lost a massive 12.6% since the beginning of the year. On the Financials board, the Financials 15 index traded down last week by 0.6%, lost 0.3% during February and is lower by 3.7% for the year-to-date.

The negative effects of South Africa’s higher unemployment rate, the level of government debt, higher inflation, and the expected strong increase in fuel prices, all contribute towards this negative sentiment.

The rand also remains under pressure, especially since the Budget speech last month, the news that the inflation rate is higher at 5.3% and that unemployment had surged again during quarter four, 2023.

The news from the US that the jobless claims are moving much lower, indicating that the US Federal Reserve will not change interest soon, has a bearish effect on the currency.

Although the rand against the dollar improved strongly last week from R19.31/$ to R19.13/$ on Friday, the currency is still 54 cents weaker over February and has depreciated by the same margin since the beginning of the year.

The currency will remain under pressure this coming week while waiting for the release of the US non-farm payrolls.

On global markets, US equities continue to steam ahead. US economic indicators almost on a weekly basis have now begun to show that despite record high interest rates the last decade, the economy is heading for a mild recession (soft landing) to a no-landing at all.

The US economy expanded an annualised 3.2% in quarter four 2023, slightly below the 3.3% that was forecast, but still well above 3%.

The US Bureau for Economic analysis announced last week that US personal income advanced $233.7 billion (R4.5 trillion), 1 % at a monthly rate, in January. Disposable personal income increased by 0.3% and consumer spending increased $43.9bn, or 0.2%, on the previous month.

In reaction to these favourable data US equities accelerated last week. On Wall Street, the S&P 500 index reached another record close on Friday gaining 1% during the week. The index was up by 3.5% in February and is already 7.7% higher since the beginning of the year. Over the last year it has shot up by 27%.

Both the Dow Jones Industrial Index- 1.12% in February and 17.0% over the last year - as the Nasdaq index, up 4.1% in February and 39.2% over the past year, reflects the positive sentiment in the US economy.

This coming week local markets will await the release of various South African economic indicators.

On Tuesday Statistics South Africa will release the gross domestic product economic growth data for quarter four, 2023. It is expected that the economy had grown by 1.7% in quarter four, quarter-on-quarter seasonally adjusted and annualised. It will mean that economy has grown 0.8% for 2023.

On Wednesday, the SA Reserve Bank will announce the current account and gold and foreign reserve data. It was on the gold and foreign reserve numbers that the government will employ money to cover its national debt. It is expected that the reserves had increased by R462bn.

On global markets, financial markets await the testimony of US Federal Reserve chairperson Jerome Powell in front of the US Senate on Wednesday and the non-farm payrolls to be published on Friday.

It is expected that the US had added another 200 000 jobs in February 2023 and that the unemployment rate remains at 3.7%. Elsewhere, the European Central Bank will release its interest rate decision on Thursday.

Chris Harmse is the consulting economist of Sequoia Capital Management and a senior lecturer at Stadio Higher Education.