Trump fears: Financial markets recover - Chris Harmse
Most global and South African financial markets ended the week strongly as initial fears over President-elect Donald Trump’s expected policies subsided, and markets began to recover from what many viewed as an overreaction. The US dollar lost some ground, and equity prices returned to pre-Trump levels.
On the JSE, the All Share index gained 2.10% last week and, by the close on Friday, was only 700 points away from the record level set on October 27, 2024. The index is now 13.0% higher than it was at the beginning of the year. The Industrial 25 (IND25) and Financial 15 (FIN15) indices hit new all-time records last week. The IND25 surged by 3.7% over the week and is now 18.8% higher year-to-date. The FIN15 index rose by 1.6%, bringing its year-to-date gain to an impressive 19.8%.
On the foreign exchange market, the rand also showed signs of recovery, moving closer to the stronger levels seen before Trump’s election. By Friday’s close, the currency traded at R18.00/$, touching a low of R17.96/$ during the day. This marked a 22 cents improvement from the R18.22/$ recorded the previous Friday. Against the pound, the rand strengthened to R22.94/£, while it remained steady at R19.00/€ against the euro.
The US non-farm payrolls data for November, released on Friday, indicated that the US economy added 227 000 new jobs last month. This was six times higher than the revised 33 000 jobs added in October and exceeded market expectations of 201 000. These figures highlight the resilience of the US economy, even as the unemployment rate edged up slightly to 4.2% from 4.1%, aligning with expectations. Average hourly earnings increased by 0.4%, matching October’s rise and exceeding the 0.3% forecast.
The key question remains whether the US Federal Reserve will cut interest rates by another 25 basis points at its meeting on December 16–17. Fed chair Jerome Powell recently stated that the central bank could adopt a "little more cautious" approach to rate cuts if the US economy remains stable and strong. This positive economic backdrop—characterised by robust job growth and falling interest rates—has buoyed US equity markets.
On Wall Street, the Dow Jones advanced by 2.1% in November and is now 23.6% higher than a year ago. The S&P 500 index rose 0.8% last week, gaining 2.07% over the month and an impressive 32.8% year-to-date.
This week, investors are eagerly anticipating South Africa’s November inflation rate data. Analysts expect the annual CPI to have increased to 3%, the lower end of the Reserve Bank’s target range, slightly higher than October’s surprising 2.8%. Stats SA will release the latest mining and manufacturing production figures for October tomorrow. Additionally, the annual producer price inflation rate (PPI) for November, due Thursday, is expected to remain negative for the second consecutive month at -0.3%, an improvement from October’s -0.7%.
Globally, attention will focus on the US annual inflation and core inflation figures for November, set to be released on Wednesday. These numbers could offer clues about the Federal Reserve’s next move on interest rates. Expectations are for core inflation to hold steady at 3.3% and headline inflation at 2.6%. China will release its November inflation rate today, with a slight increase from 0.3% to 0.5% anticipated. Meanwhile, the European Central Bank is scheduled to announce its latest interest rate decision on Thursday.
Chris Harmse is the consulting economist for Sequoia Capital Management and a senior lecturer at Stadio Higher Education.
BUSINESS REPORT