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Financial markets remain nervous; JSE share prices at record highs

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By Chris Harmse

South Africa’s financial markets are experiencing volatility and uncertainty. The rand and bond rates remain under pressure.

However, stocks remain optimistic. Bond rates in the United States and Europe continue to fall in anticipation of inflationary pressure and possible interest rate hikes.

The stronger-than-expected US jobs report on Friday pushed the 10-year Treasury yield above 1.6%. The US Department of Labor said the non-farm payroll jumped 379,000 in February as the unemployment rate fell to 6.2%. Only 210,000 new jobs were expected to be added and the unemployment rate to hold steady at January’s 6.3 percent level.

Wall Street stocks, however, rebounded sharply on Friday, with the Dow Jones Industrial Index opening more than 300 points higher, while the S & P500 and Nasdaq opened 1% more.

The stocks that will benefit from a rapid economic recovery gained as a result of the jobs report will be mainly banks and retailers. Energy stocks like Occidental Petroleum jumped more than 3%. Higher bond rates have again led to a sell off in tech stocks with high valuations like Tesla and Peloton.

This sudden rally in equities on Friday in the United States follows a day of uncertainty and negative sentiment over Federal Reserve Chairman Jerome Powell’s remarks on the Treasury rate hike. He noted that while the sudden rise in bond rates has caught his attention, the Fed remains neutral on any possible measures to be taken to counter the rise in Treasury rates by adjusting the Fed’s asset purchase program. .

South African stocks, bond rates and the rand followed these volatile moves in the US and around the world last week. On Thursday night, the rand lost more than 45 cents against the dollar and stocks lost more than 1.5%. Bond rates rose sharply last week with the shorter-term government guarantee R187 falling from 7.33% to 7.58% at Friday’s close. This is the third week in a row that bond rates have risen sharply. The R187 had climbed 12.8% since February 5 when the Treasury traded at 6.66%.

U.S. jobs data, the sharp rise in U.S. futures on Friday morning and afternoon, as well as the strong opening on Wall Street boosted JSE shares. This helped most indices end the week much stronger than the previous Friday and again near record highs.

The all-equity index rallied sharply and rose 2.33 points last week to 68,271 points, after losing 2% the week before. This is the highest Friday close of all time. Manufacturers recovered by 1.7 points, after falling 4.4% the previous week. The Resource 10 index rose 4.6%, while financials also rebounded as the Fin15 rose 4.6%. Listed real estate stock prices remain on their winning streak as the index also closed on a new high for the year, gaining 3.2% and is now up 7.4% year-to-date .

Gold and platinum prices continue to retract. The price of gold closed Friday at $ 1,700 (R26,119), $ 39 per ounce down from the previous week. Platinum lost $ 56 last week to $ 1,129.

Next week, all eyes will be on the release of South Africa’s long-awaited economic growth rate of gross domestic product (GDP) for the fourth quarter of 2020. Stats SA is expected to report that the year-over-year growth rate was 4.8 percent (6 percent in the third quarter), the quarterly rate 3.7 percent, and the growth rate for the whole of 2020 around -7 percent. On Wednesday, the Reserve Bank will publish its quarterly bulletin for March with the numbers of the most important current accounts. StatsSA will also release the latest mining and manufacturing production figures for January.

Globally, the most developed markets will announce their latest inflation figures, the most important being that of the United States. This rate will set the tone for bond rates and equity markets for the week. Germany will announce its latest current balance issue. The EU will release the third estimate of its GDP growth rate for the fourth quarter of 2020, and the ECB will announce the EU’s interest rate decision.

Dr Chris Harmse is an economist at CHEconomics

* The opinions expressed here are not necessarily those of IOL or the title sites

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Financial markets remain nervous; JSE share prices at record highs

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