During the first part of last week, South African equities, bonds and the rand continued to recover strongly.
The ALSI gained another 2.9% during the first three days of trade and ended the month 12.3% in the green, the strongest monthly gain since the lifting of the Covid-19 restrictions.
The decrease in South Africa’s unemployment rate to 32.9% during the third quarter 2022, from 33.9% during the second quarter 2022 and 34.9% during the first quarter of 2022 shows the South African economy is likely to avoid an economic recession and is on its way to grow at 1.6% in 2022.
Together with the gold price touching the $1 800 (R31 563.50) per ounce and the rand/$ that dipped in under R17 (R16.98/$) investors started to believe that the worst for South African financial markets was over.
Then step in the latest political saga with the news on Wednesday, after the close of financial markets, that a Section 89 panel found that President Cyril Ramaphosa allegedly contravened the Constitution and anti-corruption laws with the dealings at Phala-Phala.
Analysts, economists, political commentators, and the public started to believe that the president would resign before the end of last week.
The big losers on Thursday, as expected were the rand that at one stage traded almost 90 cents weaker than Wednesday on R17.89/$, and bonds that lost more than 7%.
Financial shares, as a proxy for domestic sentiment, traded 6.15% lower for the day.
The ANC national executive committee (NEC) met on Friday but no decision was made on the president, and the whole saga will only be addressed at the ANC’s 55th national elective congress later this month.
These developments on Friday calmed the markets as the rand/dollar exchange rate recovered with more than 50 cents to R17.34/$ at the opening of South African markets on Friday morning. Bonds also recovered, gaining 2% on the day.
Although most JSE equities started Friday nervously with prices only marginally lower, they started to move negatively from midday on Friday in anticipation of the announcement of the US non-farm payrolls on Friday afternoon (SA time).
The US Labour Department announced that the US economy created 263 000 new jobs during November. This is much higher than the 200 000 new jobs that the market expected and led to a swing in market sentiment to negative.
Equities were sold off and on Friday alone the ALSI lost nearly 1%. The job-data had swung sentiment towards another hike of 75 basis points in the Fed rate by the Federal Reserve at their meeting next week (December 14).
The Reserve Bank will publish its quarterly bulletin for December on Thursday. The bank will indicate in its report the current account balance. It is expected that the current account recorded a deficit of R140 billion during the third quarter.
Also, on Thursday Statistics SA is to release manufacturing production numbers for October. In global markets investors await the release of Purchasers Managers Indices (PMIs) for various countries. Some developed countries are to announce their trade balance figures during this week. The central banks of Australia, India and Canada will announce their latest interest rate decisions.
Chris Harmse is the economist at Sequoia Capital Management.