Geopolitical concerns keep markets under pressure - Chris Harmse
South African financial markets ended the week in mixed territory:uncertain and mostly weaker. The Trump victory in the US presidential election, along with the Republican landslide in both the Senate and the House of Representatives, brought negative sentiment toward emerging markets, particularly China and South Africa.
The fragile situation in the Middle East and the ongoing conflict between Russia and Ukraine also shifted market sentiment, affecting expectations regarding the magnitude and speed of interest rate cuts in most developed countries, particularly by the US Federal Reserve (Fed).
The US markets were closed on Thursday and after lunch on Friday. The dollar weakened in thin pre-holiday trade as markets remained nervous, assessing the risk that President-elect Donald Trump might initiate a tariff war that no one would win.
On the JSE, the All Share Index (ALSI) fell for the third consecutive week since Trump won the election. The ALSI declined by 0.8% last week, losing 2.9% over the course of November. A sharp drop in precious metal prices, driven by fears of large-scale tariffs by the Trump administration on Chinese imports, pushed resource indices deep into the red. The RES10 index fell 2.9% last week and is down a massive 12.2% for November.
In the foreign exchange market, the rand lost ground early last week, weakening from R18.11 against the dollar to R18.22/$. However, as negative sentiment regarding a potential Trump trade war with China began to weigh on the US dollar from Wednesday, the rand rebounded to close at R18.05/$ on Friday. Over November, the rand depreciated by 45 cents, or 2.2%, against the dollar.
The weaker Brent crude oil price during November helped counteract the rand's depreciation, limiting the under-recovery in the price of 95 ULP petrol to just three cents per litre since the last petrol price adjustment. The price of 93 ULP petrol, in fact, recovered by 7c per litre. However, the diesel price is expected to increase by 47c per litre on Wednesday.
In the US, the three main Wall Street indexes ended last week stronger, recording weekly gains driven by industrials, consumer discretionary, financials, and consumer staples. However, communication services, utilities, and technology stocks were the biggest losers. Bond yields fell as markets awaited the implementation of President-elect Trump's policies and their impact on the U.S. and global economies, the interest rate cut cycle, and capital markets. The most significant of these policies include tariffs, particularly on Chinese imports, as well as tax cuts and deregulation.
This week, investors await the release of US non-farm payroll data for November, due this Friday. The data will weigh heavily on the interest rate decision by the Federal Open Market Committee during its final meeting of the year on December 16–17. Markets expect all three major employment data series to remain unchanged from October. The unemployment rate is forecast to stay at 4.1%, annual hourly wage earnings growth at 4.0%, and the participation rate at 62.6%.
Domestically, Stats SA will announce South Africa's Quarter three (Q3) GDP growth rate tomorrow. It is expected that the quarter-on-quarter annualized seasonally adjusted growth rate will rise from 0.3% in Q2 to 0.7% in Q3, aligning with projections for 1.1% overall growth in 2024. South Africa's current account balance will be announced on Thursday.
Chris Harmse is the consulting economist of Sequoia Capital Management and a senior lecturer at Stadio Higher Education.
BUSINESS REPORT