After a difficult year for share prices on the JSE, bond rates and the rand, financial markets started 2023 on a positive note.
The sharp increase in commodity and metal prices in the last six months of 2022 continued, while a stronger rand and bullish sentiment towards South Africa’s inflation rate expectations had led bond rates to decrease, as net buying on the capital market continued.
Expectations of slower or no further hikes in the US Fed rate, lower oil prices, a possible end to the Russian- Ukraine conflict and a strong recovery in Chinese equities also boosted prospects for local shares, bonds, and the rand.
On the JSE, the ALSI ended 2022 flat losing -0.9% or a mere 661 points for the year. The Resources 10 index was down by a margin of only 0.4% last year, while the industrial 25 index had a difficult year losing 5.3% and the Financial 15 index surprised many as the index gained 5.0% in 2022.
This is more of an indication that the lower inflation rate in South Africa against most developed market economies (DM) and an economy that is likely to grow around 1.6% in 2022, double the 0.8% recorded in 2021, is more sustainable than most other countries.
In this regard, on Wall Street, the Dow Jones Industrial Index had lost -8.8% during 2022, the S&P 500 index was down by -14.6% and the Nasdaq lost a massive -33.1%.
In London, the FTSE100 Index was one of the few DM countries that recorded a growth last year of 0.9%. On European markets the German Dax tumbled -10% in 2022, the French CAC index lost -6.0% and the Euro stock index was down by -6.0%.
The strong increase in commodity and metal prices during the first few days of the year as well as the oil price that dipped in under $79 per barrel and not the least “favourable” US non-farm payrolls, boosted shares and bonds on the JSE during the first week of 2023.
The ALSI on the JSE gained 5.2% during the first three days of trading and reached its highest level since the end of February 2021.
Given the higher prices for metals and hard commodities the Resource 10 index increased by 7.10% last week, while the Industrial 25 index was higher by 1.8%, and the Financial 15 index traded higher by 0.7%.
In the US the latest job report indicates that US wage growth is slowing, increasing the odds that the Fed will start to slow its pace of rate hikes as the market awaits the release of the US latest inflation rate this week.
In reaction US stocks bounced back sharply on Friday. The S&P 500 jumped by more than 2% during the first week of 2023, the first weekly advance the past five weeks.
The dollar also recorded its biggest loss in two months. The rand in after hours trade on Friday recovered by more than 20 cents to close on R17.10/$.
The gold price during last week had shot up by $41, trading at $1 866 by the close on Friday.
This is the metal’s highest price since May 22 last year. The platinum price traded $35 higher last week at $1 105 an ounce, and the price of Brent crude oil closed at $79 per barrel on Friday.
After the first week since the Central Energy Fund lowered the prices for diesel (-R2.69 a litre) and that of petrol (R2.06 per litre), the price of diesel is already 142 cents per litre over- recovered after the first five days in 2023, and the over-recovery for 95 petrol is at 88 cents per litre.
Another big decrease in fuel prices at the beginning of February will not only boost foreign investment sentiment towards South Africa, but will have a positive influence on the Monetary Policy Committee (MPC) meeting in February to not increase the repo rate further. On the capital market the 10-year bond gained 2.0% for the week and traded lower than 10.0% on Friday.
The Reserve Bank will release foreign reserves data today. STATSSA will publish the manufacturing production data for November 2022 on Tuesday. The new vehicle sales for December will also be announced on Tuesday.
On global markets investors await the release of the US inflation rate for December on Thursday. It is expected that the CPI rate had decreased further to 6.5% down from 7.1% in November and that core inflation is also down to 5.7% from 6.0% the previous month.
* Chris Harmse is the consulting economist of Sequoia Capital Management
BUSINESS REPORT