Share indices across the globe had a positive and strong upward movement during 2021. The enormous stimulation packages of most developed economies boosted a sharp post-Covid-19 economic upturn, helping lift company profits, retail sales and manufacturing production.
The super commodity price cycle, which saw most resources and other commodity prices reach record five-year levels was imminent, while the rand exchange rate, although very volatile, recovered back to pre-Covid-19 levels. This despite some pressure on US stocks since the opening of the markets at the beginning of the year.
The Dow Jones industrial index ended last Friday lower for the second consecutive week and is now 1.2 percent down for the year. The S&P500 index lost 2.2 percent over the past two weeks, whereas the Nasdaq traded down by 4.6 percent since its opening on December 3.
The news that the US inflation rate accelerated to 7 percent in December, a fresh high since June of 1982, had raised expectations for an increase in the bank rate by the Federal Reserve at their next meeting.
Energy was the biggest contributor to the steady gain in the CPI index rising 29.3 percent over the previous year to December. Gasoline prices had surged by 49.6 percent. The news on Friday that US retail sales sank 1.9 percent more in December, the biggest decline since February 2021, also contributed towards negative sentiment on the US share markets and saw the dollar depreciating.
The rand exchange rate appreciated against all three of the main currencies for the second consecutive week. The demand for the rand arises as foreign buying of South African shares and bonds – and the strong increase in the prices for metals, especially gold and platinum – boosted the currency.
The rand moved stronger against the dollar from R15.95 to the dollar on December 31 to R15.62 the the previous Friday (January 7) and closed last Friday on R15.36 – an appreciation of 3.7 percent since the beginning of the year. Over the past two weeks the currency has appreciated by 58 cents against the pound to R21.01 and by 60 cents against the euro to R17.55.
On the JSE the all share index continue to move higher and closed Friday above the 75 000 level at 75 160 points. This is already 2 percent higher than the beginning of the year (January 3). The main drivers for this continuing bull run remain the resources board. The Resources 10 ended Friday on a new record week-end level of 74 443 points, gaining 4.8 percent already for the year to date. The price for gold supported this run as the precious metal ended Friday on $1 829.10 (R28 535.90) an ounce, gaining $31 for the week. Platinum also remains in demand as the price for the metal increased by 2.4 percent last week.
This coming week, the release of South Africa’s inflation rate for December will be important. It is expected that the CPI had increased to 5.7 percent in December, up from 5.5 percent the previous month. Statistics South Africa will announce the retail sales data for November on Wednesday, and the mining production numbers for November on Tuesday.
On global markets the Bank of Japan will release the country’s inflation rate for December on Monday. The UK will publish its unemployment data for November, as well its inflation rate for December, and its latest retail sales, while Germany publishes its economic sentiment index for January 2022. The US will publish through the week various housing data, the NY Empire estate manufacturing index, the important oil and gas reserve levels and the jobless claims weekly data.
Dr Chris Harmse is an economist at CH Economics.
*The views expressed here are not necessarily those of IOL or of title sites.
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