South African currency and stock markets ended Friday on a high note as the rand surged to its highest in a year while stocks reached a record high as investors flocked to gold, pushing the price of the yellow metal to record highs.
The rand strengthened to R17.87 against the US dollar on Friday afternoon, its highest in 12 months, bolstered by receding concerns over a potential recession in the US and prospects of global interest-rate cuts in the coming months.
Over the past four weeks, the dollar has lost 1.87% compared to the rand, and 6.24% in the last 12 months.
Nedbank economist, Isaac Matshego, said market sentiment continued to be driven by easing concerns of a potential recession in the world’s largest economy following a string of encouraging economic data.
“The local currency was boosted by a weaker dollar on growing confidence that the US Federal Reserve (Fed) will cut rates at its September meeting following evidence of US disinflation,” Matshego said.
“The local unit shrugged off the lacklustre local mining and unemployment data released earlier in the week,” he said.
Data from Statistics SA last week showed that the rate of unemployment in South Africa rose to its highest in two years during the three months to June, from 32.9% to 33.5%, meaning that 8.4 million of the working-age population were jobless.
The price of gold rose above $2 500 (R44 631) per ounce on Friday, the highest on record, amid strong demand for safe-haven assets as markets continued to assess the policy outlook for the Fed.
The markets have shown a broad consensus on 100 basis points in rate cuts by the Fed throughout their three remaining decisions this year, though the strong retail sales released has driven investors to pare bets of a stronger 50 basis points cut next month.
Bianca Botes, a director at Citadel Global, said gold prices also increased as investors assessed the latest US Consumer Price Index data for insights into the Fed’s monetary policy direction.
“Although US consumer inflation eased to 2.9% in July, below market expectations, the possibility of a smaller Fed rate cut dampened some of the strong momentum for gold,” Botes said.
“Nonetheless, gold continues to benefit from its safe-haven appeal amid ongoing geopolitical tensions in the Middle East,” she said.
Meanwhile, the JSE All Share Index ended Friday at record highs, surging 0.7% to 82 824 index points after four days of rally in a row.
The rally on the JSE was diverse but largely driven by the 5.6% gain in Vodacom after the company pledged to spend R800 million this financial year to upgrade its network and deliver connectivity to deep remote locations in the South African region of KwaZulu-Natal.
Vodacom was followed by Bidvest which rose by 3.6%; Alphamin, Redefine and Impala Platinum, which all gained 3.5%, 3.2%, and 3%, respectively.
Investors are now focusing on the local CPI figures coming out on Wednesday and are expected to show that inflation dipped below 5% in July following petrol price cuts in the past two months.
Investec chief economist Annabel Bishop said markets continued to worry about weak global growth, and hence demand, which has been subduing the oil price overall, and this sentiment has been outweighing concerns over the escalation in tensions in the Middle East.
Bishop said while tensions in the Middle East had exacerbated, the oil price had not been substantially affected, though worsening tensions in the Middle East remain a substantial risk, with intentional strikes on oil infrastructure not anticipated.
“Much will depend on international oil prices, and the rand, for South Africa’s inflation rate outcomes in the fourth quarter of 2024. With little to no fuel price changes in Q4.24, and a stable rand, the CPI inflation could run between 4.0% and 4.5% in the fourth quarter of 2024,” Bishop said.
“The rand is trading stronger as the US retail data allayed some fears on US economic weakness, as well as on market anticipation of a rapid US interest rate cut cycle, beginning in September, also aiding fuel prices lower,” she said.
BUSINESS REPORT