The markets in South Africa opened the week on a weak footing yesterday despite the gold rally as unfavourable domestic factors such as intensified load shedding and logistics challenges dragged sentiment.
The gold price strengthened above $2 000 (R36 838) an ounce yesterday, hitting its highest levels in more than six months and benefiting immensely from the dollar’s weakness, as traders piled on bets that US interest rates have already peaked.
Last week, economic data continued to paint a mixed scenario in the US, although weak consumer spending figures suggested the Federal Reserve’s rate hikes are finally starting to weigh on the broader economy.
This comes as inflation is expected to continue falling next year, but at a much more gradual pace than in 2023, driven by a gradual loosening of labour market conditions, and prompting the Fed to start easing policy towards the end of the year.
However, the gold rally did not translate into any meaningful gains on South African stocks as the JSE was trading on a cautious note.
The JSE all share index eased 0.5% to 75 370 points by 5pm yesterday, tracking a cautious global sentiment ahead of key inflation data the US and Europe that could influence the next moves from major central banks.
Anglo American Platinum surged 6.3%, moving to the top of the index, followed by DRDGold at 6.2%, Northam Platinum at 3.8%, Impala Platinum at 3.4%, and AngloGold at 2.4%.
The South African Reserve Bank (SARB) decided to keep interest rates on hold for the third consecutive time at 8.25%, but was once again hawkish in tone as economic uncertainty persists in South Africa, and inflation risks remain tilted to the upside.
Meanwhile, the rand traded weaker at R18.81 to the US dollar during early trade before clawing back to R18.72/$1, helped by a subdued dollar amid hopes of an end to US interest rate hikes.
However, the rand remains volatile though it has strengthened from a one-month low after breaching R19/$1 last week.
Negative local sentiment hurt the local currency as the logistical challenges at the ports worsened while power cuts escalated to Stage 6, more than offsetting the boost from the SARB’s hawkish stance.
The inadequate performance at Transnet and Eskom versus demand has increased economic growth concerns, and so negativity for investors.
Investec chief economist Annabel Bishop, however, said the rand has since come back to around R18.76/$1 as Sunday saw load shedding drop to Stage 4 and Stage 3 temporarily.
Bishop said the rand was an outlier in its basket of 23 emerging markets currencies, missing out on the biggest monthly rally for the asset class since January, with load shedding worrying foreign investors along with South African populist policies as the NHI goes through the National Council of Provinces.
“The rand had dropped below R18.00/$1 the week before last, reaching R17.95/$1 as the domestic currency remains highly volatile, and will continue to remain extremely volatile,” Bishop said.
“Currently, the rand averages R18.80/USD since the start of Q4.23, and trading between R18.84/USD and R18.62 today, while against the euro it is at R20.50/EUR and against the British pound it’s at R23.68/GBP.”