This coming week, investors and analysts will await the publication of the leading business cycle monitor today. The business cycle indicator monitors the direction in which real economic activity is moving.
MARKET sentiment last week went on a roller coaster as South Africa’s inflation rate climbed higher than expected (7.1%) and the gold price became volatile due to a lack of direction in the US.
The stronger than expected increase in local food prices at 14% year-on-year came as a surprise, as the upside risk for the inflation rate remains. The strong increase in electricity prices at the beginning of April and the volatile movement in both the Rand exchange rate and crude oil prices put further pressure on the Consumer Price Index (CPI).
Uncertainty over the direction that the Marginal Propensity to Consume (MPC) will take at their next meeting in May, also contributed towards volatility on South African financial markets.
On the JSE, the ALL Share Index (ALSI) traded sideways at the beginning of last week. At the beginning of the week the prices for gold and platinum increased sharply causing the Resources 10 index as well as the ALSI to recover strongly.
The ALSI gained more than 500 points, just to trade down by 499 points again on Wednesday. The index ended the week 1.2% down as the gold price tumbled by $26 to $1 978 on Friday. The Rand exchange rate also moved nervously last week.
The Rand started last Monday on R18.03 per dollar but lost ground quickly to R18.30/$ at the close, just to improve again to R18.15/$ on Tuesday, depreciated again to R18.28/$ on Wednesday, R18.04/$ on Thursday and R18.09 at the close on Friday.
Capital markets followed the same pattern as both short and long bond rates remain on a roller coaster.
Share prices on the JSE also followed stock prices on Wall Street as the S&P 500 fell for the third consecutive day on Friday.
Mixed corporate earnings and a lack of data kept investor-traders out of the market as the outlook for inflation, economic growth and the outlook for the FED’s interest rate path fuelled uncertainty.
The S&P 500 traded down by 0.8% since last Wednesday and the Dow lost 0.6% last week.
This coming week, investors and analysts will await the publication of the leading business cycle monitor today. The business cycle indicator monitors the direction in which real economic activity is moving.
It calculates a composition index of the components of building plans approved, new passenger vehicles sold, the commodity price index, prices of shares on the JSE, job advertisement, volume of orders in the manufacturing sector, real money created (M1), average hours worked by a factory worker in manufacturing, and interest rates, the composite leading business cycle indicator of the major trading partner countries, business confidence index and gross operating surplus.
The index, with a base year 2010, has moved negatively for four consecutive months since October 2022 and is expected to have improved positively to 0.2% in February.
On global markets the release of the advanced US GDP growth rate for Q1 2023 should dominate market sentiment. Expectations are that the GDP growth rate decreased substantially from 2.6% in the fourth quarter of 2022 to 2.0% in the first quarter of 2023, indicating that the US economy may move into a recession later this year.
Also, of note this week will be various US house prices indicators, US durable goods orders (March), and personal income and spending numbers. The EU and several European countries will also announce their GDP growth rate flashes for the first quarter of 2023.
Chris Harmse is the consulting economist of Sequoia Capital Management.
BUSINESS REPORT