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Political and economic data – main factors of financial market volatility

Chris Harmse

In a week of numerous political changes in South Africa, along with expectations of economic data and falling precious metal prices, stock prices on the JSE have moved a lot and remained volatile, while the rand s ‘is strongly depreciated on Friday.

The two main factors were Tito Mboweni’s resignation as finance minister, and the appointment of new finance minister, Enoch Godongwana, in his place and the release of the latest US employment data on Friday.

Godongwana’s appointment as the new finance minister will draw some criticism, given his experience as deputy economic development minister in 2012 and his resignation at the time after allegations of fraud. His resignation was due to outrage in government circles over his involvement in a company that allegedly defrauded workers at a R100 million garment factory out of their pension fund money. The financial markets are therefore to some extent skeptical of his appointment.

The rand lost about 40 cents against the dollar in the 24 hours after his appointment and traded late Friday night around R14.63 to the dollar. Against the pound, the currency traded on Friday alone, 21 cents lower on R20.29 and lost 25c against the euro, to trade at R17.21. This after the currency saw a strong rally in the first four days of the week, with the rand trading against the dollar at a time as strong as Rand 14.29.

Godongwana is a leading figure in the ANC on economic policy. He has headed the ANC’s Economic Transformation Committee for over a decade and served as Chairman of the Development Bank of Southern Africa.

Godongwana is seen as the one who frequently tries to persuade his colleagues to make pragmatic and market-friendly decisions. Therefore, we have to believe that the new Minister of Finance will not play partisan politics by favoring civil servants with unnecessary salary increases, the nationalization of the SA Reserve Bank and other big bailouts for state-owned enterprises.

Time will tell and financial markets and domestic and global investors will watch it closely. Dare we say it won’t abuse the gold super-cycle tax revenues from booming mining and agricultural exports.

In financial markets, gold and platinum prices fell during the week over fears that the Delta variant of the Covid-19 virus will continue to haunt countries in Asia and Europe. The price of gold has fallen from over $ 60 (R878) to $ 1,762 and the price of platinum from $ 64 to $ 975 an ounce. Instead, investors turned to the dollar and US stocks on Wall Street. This positive sentiment towards the United States strengthened on Friday after the release of better-than-expected employment data. The US unemployment rate was also lower than expected.

Last week, on the JSE, the all-stock index traded down 0.4%, while the Industrial 25 index lost 1.4%, following a massive sell-off by heavyweights Naspers, as well as stronger rand, most of the week.

Financials gained 5.1%, mainly due to the initial currency appreciation and trade in listed real estate up 2.6%. The Resources 10 index lost 1.9%. In the capital markets, investors played the card of caution and sold part of their bond holdings. The R186 short-term bond fell 0.5%, with the rate falling from 7.34% to 7.38%.

Next week, investors and analysts will focus on releasing South Africa’s manufacturing and mining production data for June.

Sacci will also release its latest Business Confidence Index.

In global markets, all attention will be on the announcement of the latest US inflation rate for July, as well as weekly unemployment data on Thursday.

Germany will release its trade balance and the UK will release its preliminary gross domestic product growth figure for the second quarter of 2012 and its trade balance for June.

Chris Harmse is the economist at CH Economics.

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