Worst of both worlds: Rand, bond rates and equity prices come under big pressure, Newsline

By Dr Chris Harmse

JOHANNESBURG – Data shows that a second wave of Covid-19 outbreaks across the Western world has seen an exodus of investors from risky emerging market assets back into the dollar and other money market instruments.

Even rand hedgers could not take advantage of the weaker rand.

The rand exchange rate, equity prices and bond rates came under severe pressure last week.

Even when, on Friday, global markets started to recover again after rumours of a new US stimulation package, equity prices on the JSE continued their fall.

Big losses from index giants Naspers, Richemont, Anglo American and BHP kept most indices under pressure. Naspers in early trade on Friday was down 4percent after Tencent holdings in Hong Kong retreated for the second consecutive day.

The all-share index ended Friday on 53587 points. This is 2percent lower than the previous Friday and now 3 497 (6.1 percent) down from the beginning of the year.

The negative world sentiment on possible renewed lockdown measures in Europe, the UK and US contributed to a substantial drop in metal prices and oil.

Gold was down 4.8percent and platinum 9.9percent last week. Silver had slumped 15percent. Despite the weaker rand, the Resources 10 index traded 3.6percent lower. The Industrial 25 index, however due to the weaker rand, gained 0.5percent. Rand sensitive stock like financials and listed property had a nightmare week. Bonds came under pressure as the R187 government benchmark bond increased by 13 points as the yield dropped by 1.8percent.

On the foreign exchange, the rand had one of its worst weeks since the lockdown began in March.

Together with negative global sentiment against emerging market currencies, the so-called in-fighting between ministers Tito Mboweni and Pravin Gordhan over the SA Airways bailout package of R10.8billion also contributed to a sell-off of the rand.

The rand fell 94 cents to the dollar last week from R16.25 to R17.19 at the close on Friday.

This is the biggest weekly depreciation since April 3, a few days after the announcement of level 5 of the lockdown.

Against the pound, the rand lost 3.6percent and traded on Friday at R21.82. It also fell the same amount against the euro to trade at R19.96.

This week investors await the announcement of South Africa’s Producer Price inflation (PPI) number today. It is expected that the PPI had increased marginally from 1.9percent in July to 2.2percent in August.

Tomorrow, Statistics SA will release the unemployment rate for the second quarter this year. In the first quarter the jobless rate was 30.1percent and expectations are that it has accelerated to 40percent. Absa will announce its manufacturing PMI for September on Thursday. New vehicle sales for September will be released on Friday.

Globally, Germany will announce its expected inflation rate and its unemployment rate for September tomorrow. The EU will also tomorrow release its latest consumer confidence and economic sentiment indices. In the US, Federal Reserve members will deliver speeches this week.

On Wednesday, the UK and US will announce their second estimate GDP growth rate for the second quarter, and China will publish its manufacturing PMI for September. The US will release personal income and spending data for August on Thursday and key job numbers for September on Friday.

Dr Chris Harmse is an economist at CH Economics