Over the past week global financial markets moved uncertain and mostly negative given the uncertainty on global company earnings, interest rates and inflation rate movements over the next few months.
In the US, the earnings season of reporting of listed companies also contributed to some volatility. It was announced last week that the real gross domestic product (GDP) in the US had increased at an annual rate of 2.8 % in the second quarter of 2024, against the annualised real GDP increase of 1.4% during the first quarter 2024. This has led to some analysts and investors arguing that given the stronger-than-expected economic growth it is not necessary for the Federal Reserve to lower its bank rate soon.
At the same time some nervousness developed in the US equity markets that the magnificent seven stocks may come under pressure given lower than expected earnings. The term “magnificent seven” represents a group of company stocks – Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla – that have grown into global giants and industry leaders. They are among the leading indicators of the tech sector performance and are the major drivers of the S&P500 benchmark index of US stocks.
Last Wednesday these seven equities as a group lost a massive $570 billion (R10.4bn) in their combined market capitalisation. This caused the S&P500 to experience its worst performance in a day for over a year, losing 1.7% and the tech weighted Nasdaq index losing 3.0%. For the week the S&P500 lost 0.83%, the Dow Jones Industrial index gained 0.75% and the Nasdaq traded lower by 2.56%.
The volatility on US markets also created some volatility on South African equity, exchange rate and bond markets. Nevertheless, these markets ended the week stronger.
The announcement by Statistics South Africa that the inflation rate came down only marginally in May 2024 to 5.1% from the 5.2% recorded in April, as well as that the monthly rate increased by 0.1%, supported the view by the Monetary Policy Committee that it is too soon to lower its repo rate.
The All Share index on the JSE ended the week 1.5% stronger and traded 7.15% higher over the year-to-date (YTD). The All Share Industrials index increased 1.37% over the past week (5.4% YTD), the Resources 10 (RES10) lost 1.0% due to lower precious metal prices like gold and platinum, and the financial index 15 (FIN15) traded 2.60% higher (9.9% YTD).
Although the emergency market currencies moved weaker last week against the dollar with 0.83% (the trade weighted emerging market USD index), the rand kept its value trading around R18.29/$. The currency traded seven cents stronger against the £ at R23.54/£ and appreciated by four cents against the Euro at R19.87/€.
This coming week domestic markets will await the release of South Africa’s National Government’s budget balance. It is expected that the primary budget balance (income less expenditure before interest on debt) to be positive by R15 billion. This would be the first primary budget surplus since 2007. Absa will release its manufacturing Purchasing Managers Index (PMI) on Thursday.
Movements on global markets this week will be dominated by the release of the US non-farm payrolls for July on Friday. The main indicators that the financial markets are interested in are the unemployment rate (expected to remain on 4.1%), average hourly earnings (expected to remain on 3.9% increase, year-on-year) and the jobless claims number (expected on 158 000). Most countries in Europe as well as the Eurozone will announce their GDP economic growth rates for the second quarter.
Chris Harmse is the consulting economist of Sequoia Capital Management and a senior lecturer at Stadio Higher Education.
BUSINESS REPORT