Record on record for gold and equities: Is this an overreaction?
South African equity markets not only followed the international bullish momentum of the last three weeks but outperformed most international bourses last week.
On the JSE, the ALSI increased for seven consecutive days since Thursday 19 September as the index gained 5.17%.
The index is now 13.527% higher since the beginning of the year, gained 18.15% over the last six months and is 21% higher than a year ago.
The index ended the week on a new record high of 87 580 and gained 3750 points over the week.
On Wall Street, the Dow Jones Industrial index traded 0.6% higher last week and is now 25.6% higher than a year ago. The S&P500 index increased by 0.5% last week and is now 33.5% higher than a year ago.
The cut in the US Federal Reserve’s Bank rate and the lowering of the repo rate by the Reserve Bank’s MPC the previous Wednesday and Thursday ignited risk appetite for global shares and even more for South African equities, especially after the PPI data that was released last week.
The price increases at the factory gate increased by a mere 2.8% in August.
This is much lower than the expected 4.0% and the 4.2% recorded in July 202.
This number enforces market expectations of a further fifty basis points cut in the repo rate by the MPC during its last meeting for the year in November.
The question now remains if this record bullish movement is likely to continue.
It will all depends on the prices for precious metals like gold and platinum, the US non-farm payrolls to be published this Friday and expectations for more cuts in November by both the Fed and the MPC.
The gold price traded at a new record price of $2 672 per ounce on Thursday, as bullion shot up by $115 since the Fed announced its rate cut the previous Wednesday.
The platinum price advanced by $50 last week to close Friday on $1 008 per ounce. The precious metal last traded above $1 000 on 11 July 2024. Expectations in the gold market still calls for $3 000 per ounce before the end of the year.
On the foreign exchange rate market, the rand exchange rate appreciated strongly last week as the currency had one of its best weeks in 2024.
Against the US dollar the rand improved by eighty cents over the last seven days and closed on R17.07/$ on Friday. It is the currency’s best level since Monday 16, January 2022.
The rand gained 46 cents against the euro the last seven days, closing on R19.07/ €. Against the pound the rand traded lower than R23/£ for the first time since the end of June as it closed on R22.89/£.
This coming week all eyes will be on the release of the US non-farm payrolls for September.
In reaction to the numbers for both July and August, equity markets, including the JSE, took a huge hiding on the two Mondays after the release.
The market expects that the US economy added 145 000 new jobs to the economy last months and almost the same number as the 142 000 new jobs that was gained in August.
The main indicator for markets is the unemployment rate. It is expected that that the jobless rate remained at 4.2%.
If this rate is higher, the possibility of a US recession becomes bigger, that will lead to a sell-off of equities.
The Fed chairperson Jerome Powell will deliver a policy speech today at the National Association for Business Economics (NABE) Annual Meeting, Nashville, Tennessee.
Domestically, ABSA’s manufacturing Purchaser Manufacturing Index (PMI) will be released on Tuesday and total new vehicle sales for September will be announced on Wednesday.
Chris Harmse is the consulting economist of Sequoia Capital Management and a senior lecturer at Stadio Higher Education.
BUSINESS REPORT