South African financial markets traded mostly sideways last week despite the much better-than-expected inflation rate figure and increases in the prices of Gold and especially Platinum.

Markets await the Medium-Term Budget Statement Speech (MTBPS) in Parliament to be delivered by Finance Minister Enoch Godongwana on Wednesday.

Global equities and US shares moved negatively, especially during the first four days of last week as shares took a hard knock, amid worries the Federal Reserve will go slow on interest rate cuts.

The US benchmark S&P posted its first daily gain on Friday as better-than-expected consumer data were released, and treasury yields advanced.

Positive sentiment also started to develop on Friday due to tech companies' expected earnings and the US job data to be released this coming Friday.

The above uncertainty on the magnitude of the rate cuts by the US Federal Reserve (Fed) at their November and December meetings led to investors moving into the dollar and out of emerging market currencies.

As a result, the Rand dropped strongly, especially last Tuesday when the currency took a hiding losing 30 cents to R17.80 against the dollar. The Rand currency recovered somewhat and closed on Friday at R17.68/$, some 8c weaker than the previous Friday. Market nervousness about the conflict in the Middle East kept the price of Brent crude oil around $76 (R1342.) per barrel. This is on average $3 per barrel higher than in September.

It is expected that South African motorists will experience an increase in fuel prices at the beginning of November. By Thursday the price for 95ULP petrol in Gauteng was under-recovered by 29c and diesel by 23c. Despite this price increase petrol is still 17.0% or R4.34 cents per liter lower than the beginning of November last year (2023). Therefore, it is expected that the much lower fuel prices will contribute strongly towards a lower inflation rate in November.

Statistics SA on Wednesday announced that the inflation rate decreased strongly in September to 3.8% from 4.4% in August. Housing and utilities, including the prices for electricity and water, increased by 4.8% year-on-year and contributed 1.1 percentage points to the total 3.8% increase. Food and non-alcoholic beverages advanced by 4.7% contributing 0.9 of a percentage point increase in the inflation basket price. Transport was the only negative contributor (-1.1% and contributing -0.2 of a percentage point). There remains a strong possibility that the Monetary Policy Committee of the Reserve Bank will decrease its repo rate by at least 25 basis points at their meeting in November 2023.

This coming week global and South African financial markets await the release of the US non-farm payrolls during October on Friday. The main indicators that will influence global and risky domestic assets (shares and bonds) will be the unemployment rate, jobless claims as well as the hourly wage increases (year on year). The US unemployment rate was 4.1% in September and market expectations are that it will remain at this level. If this is going to be higher the Fed will probably decrease its bank rate by another 0.5% at their meeting held in three weeks, especially if the hourly wage earnings came in lower than the expected annual increase of 4.0% and the total new non-farm jobs created were less than 140000 last month. The US will announce that third quarter gross domestic product growth rate estimation on Wednesday and it is expected to record an annual growth rate of 3.0%. The Bank of Japan will announce its interest rate decision on Thursday, while China and the US will release various Purchasing Managers Indices during the week.

Domestically the long-awaited medium-term budget statement (mini budget) by the Minister of Finance on Wednesday will be of interest. The expected income, expenditure and debt levels of the central government will influence the Rand exchange rate and bond rates.

Chris Harmse is the consulting economist of Sequoia Capital Management and a senior lecturer at Stadio Higher Education.

BUSINESS REPORT