On global markets, the price for gold lost more than $100 per ounce last week to trade well below $2 850 (R53 297) at the close on Friday, says the author.
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The news last week that US consumer spending fell in January, aggravating worries that the world's largest economy might be under pressure that can be enhanced with US tariffs against importers.
Worries that US inflation may turn around quickly so that the US Federal Reserve will turn around from its current interest rate cutting cycle sooner than expected. The annual inflation rate in the US edged up to 3% in January 2025, compared to 2.9% in December 2024, and above market forecasts of 2.9%, indicating stalled progress in curbing inflation. These worries turned quickly into a sell-off of risky assets like equities on Wall Street for most of last week.
Elsewhere, India's economy grew by 6.2% in October-December. Although it was lower than expected by 6.4%, it was quicker than in the previous quarter on the back of increased government and consumer spending. The uncertainty over global economic growth and the interest rate cycle in the US pushed global equities lower last week, causing a stronger dollar but also led to a sharp decrease in precious metals like gold and platinum, with oil prices also falling.
On Wall Street, the US Dow Jones Industrial Average managed to turn around sharply on Friday and increased by 1.4% and was up by 0.8% over the week but still trades -1.3% lower than at the end of January. The broader Standard & Poor's 500 was down by 1.2% last week and traded -0.7% lower last month. The tech-loaded Nasdaq index declined by 2.8% over the past month at the close on Friday. It is, however, too early to talk about a bullish market developing on Wall Street as up to a 10% loss can be seen as a temporary correction. All three indices had an exceptionally good run on Friday.
Domestically, Statistics South Africa announced last week that South Africa’s annual inflation rate had increased to 3.2% in January 2025, up slightly from 3.0% in December 2024 and was as expected. The increase in the Consumer Price Index (CPI) remains well below the South African Reserve Bank’s preferred midpoint target of 4.5%. The primary causes of the marginal increase were food and non-alcoholic beverages (+2.3%), housing and utilities (+4.5%), and restaurants and hotels (+4.9%).
There is still a strong probability that the Monetary Policy Committee of the SA Reserve Bank may decrease its repo rate during its next meeting in March as the rand moves stronger and domestic expenditure remains strong. On global markets, the price for gold lost more than $100 per ounce last week to trade well below $2 850 (R53 297) at the close on Friday. Profit taking and the stronger dollar were mostly the reasons. The price for platinum also came down strongly last week, losing $40 per ounce to close Friday at $4 940 per ounce. The price for Brent oil came down noticeably from $76 per barrel the previous Friday to $73 per barrel on Friday.
Due to the sharp decrease in precious metals, and the negative movement on global share markets, the All Share index on the JSE also contracted strongly last week. The All Share index lost 3.3% last week as Industrials traded down by 3.4% and the Resources 10 index lost 6.8%.
The exchange rate depreciated strongly on Friday as the currency lost 34 cents last week to close on R18.69 on Friday. Against the dollar, the rand moved sideways during February and closed on the same level as at the beginning of the month.
South Africa will announce its total new vehicle sales for February today. Financial markets and economists, however, await the release by Statistics South Africa of the country’s gross domestic product growth figure for the fourth quarter 2024.
In the third quarter 2024 the economy suddenly shrunk by 0.3%. Expectations are that the country rebounded to 1.0% during quarter four, and 0.3% for 2024. The current account of the balance of payments will be announced by the SA Reserve Bank on Friday. On global markets, investors wait for the release of the US Non-Farm Payrolls for February on Thursday. The number of new jobs created, hourly wage rate, and unemployment rate will give indication towards a possible further cut in the Federal Reserve’s bank rate at their next meeting in March.
Chris Harmse is the consulting economist of Sequoia Capital Management and a senior lecturer at Stadio Higher Education.
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Chris Harmse is the consulting economist of Sequoia Capital Management and a senior lecturer at Stadio Higher Education.
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