Turning point for SA financial markets? Gold at a new record level

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

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

Published Mar 11, 2024


Over the past six weeks we reported that South African markets remain under pressure.

The JSE All Share index by the end of last week was down by 5.4% since the beginning of the year, and the Rand/Dollar rate at one stage at the end of February reached R19.38/$. This contributed to fuel prices to have increased at the beginning of February and March.

Bond rates were higher, and the ALBI (All Bond Index) gained a mere 0.13% for the year-to-date and lostb1.5% over the past month. The news last Tuesday that the South African economy had grown by only 0.1% in quarter four and almost in a recession following the -0.2% number in quarter three of 2023, also did not help much for sentiment in financial markets.

Since the middle of last week, markets have shown some signs of improvement.

On the JSE, the All Share Index gained 1.3%, ending the week at 1.36% in the green. The index, however, is still trading negatively with -3.6% for the year-to-date.

The strong increase in the gold price to a new record high of $2,179 (R40,697) on Friday, and the platinum price that improved by more than 4% over the last seven trading days, contributed to the Resources 10 index to shot up by more than 7% last week.

Given the more positive sentiment against South African assets the Rand exchange rate improved strongly last week. The currency appreciated 40 cents against the Dollar and was trading at one stage on Friday at R18.60/$, but closed at R18.72/$.

One of the main reasons for the sharp rally on Friday was the announcement of the US-non-Farm payrolls for February. Although the economy created 277 000 new jobs (against the expected 200 000), the unemployment rate suddenly rose from 3.7% to 3.9% (expected 3.7%).

The other factor that the US Federal Reserve is interested in is the wage growth number. The average hourly earnings increased by only +0.1% over the month against the +0.3% expected, putting the year-on-year increase on average hourly earnings +4.3% vs +4.4% expected. These three lowers than expected job market indicators changed the sentiment towards the Fed to decrease its bank rate by 97 basis points in 2024 and may even start to ease rates at their meeting in May.

After the jobs data, the Dollar immediately moved weaker against most major currencies on Friday and traded 2.75% lower against the Japanese Yen, and 1.18% weaker against the Pound. It is expected that the Dollar will depreciate strongly next week.

On Wall Street equities moved weaker last week. Despite the higher unemployment rate and lower wage growth, investors still believe that the Fed will abstain from lowering interest rates soon. The Dow Jones Industrial Index ended the week -0.63% down, the S&P500 lost 0.15% and the Nasdaq index decreased by 1.1%.

This coming week local markets will await the release by Statistics South Africa of the manufacturing and mining (including gold mining) production figures for January.

Mining production year on year (y/y) in December grew by 0.6%. Given more favourable prices as well as some indication that China and the rest of Asia may recover more than was anticipated in 2024, mining production is expected to have picked up by 1.5% (y/y) in January. Manufacturing production numbers are also expected to show a recovery from 0.7% (December 2023 to 1.3% in January 2024 y/y).

On global markets, financial markets await the release of the US inflation rate for February on Tuesday. It is expected that both the important Consumer Price Index figures, namely main inflation and core inflation will have moved sideways, with the main inflation rate sticky on 3.1% and the core inflation rate only marginally down from 3.8% to 3.7%. These numbers will clearly indicate that the Fed will keep its repo bank rate the same at its meeting over two weeks.

US retail sales numbers for February will be published on Wednesday. The market expects that retail sales will improve in February to 0.7% month on month against the negative -0.6% recorded in January.

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