South African financial markets have continued to weaken for the third consecutive week. The sharpest corrections in equities, foreign exchange markets and gold prices began on Wednesday, November 6, as it became apparent that President-elect Donald Trump and the Republican Party would win control of both chambers of the US Congress.
The All Share Index (ALSI) lost 3.1% over eight trading days, while the Resources 10 Index tumbled by 9.6% during the same period. On the foreign exchange market, the rand weakened by 100 cents in intraday trade over the past eight days, closing at R18.21/$ in New York on Friday evening. This marks the currency’s weakest level in three months, representing a depreciation of 5.7% over seven trading days. Gold prices also fell sharply, dropping by $181 since Trump’s victory became evident.
Global markets outside the US also experienced losses amid fears over Trump's economic policies, including potential protectionism against Chinese imports and concerns that the Federal Reserve (Fed) may not reduce interest rates as anticipated. This triggered an exodus from risky and safe-haven assets like gold, with investors shifting toward the dollar and cryptocurrencies. The price of Bitcoin surged by $15 000 (20.7%) in the past week, reaching an all-time high of $91 738 on Thursday.
In contrast, Wall Street showed mixed results. The S&P 500 Index lost 2.8%, with most of the decline (-1.3%) occurring on Friday. Earlier in the week, the index had gained 2.1% to a new record high of 5 991 points. This was attributed to what analysts called a “Trump bump,” spurred by the previous week’s election results, a Federal Reserve interest rate cut and an inflation announcement. However, Friday’s sell-off suggests the earlier rally may have been an overreaction.
The US reported the the inflation rate had increased to 2.6% year-on-year in October 2024, up from 2.4% in September, which was the lowest rate since February 2021. This was expected. However, the increase is not expected to alter the Fed’s December decision, with the Federal Open Market Committee still likely to cut the bank rate by 25 basis points as anticipated by markets.
Although the rand has weakened significantly since late October, the recent decline in Brent crude oil prices has mitigated the impact on fuel prices. By Thursday, the price of 95 Unleaded Petrol (ULP) was 5 cents per litre over-recovered, suggesting a potential decrease in December, while diesel was 40 cents per litre under-recovered, indicating a possible sharp increase
Key Events in the Week Ahead
Investors will focus on the release of South Africa’s October inflation rate on Wednesday, followed by the Reserve Bank’s Monetary Policy Committee (MPC) repo rate decision on Thursday. Analysts expect the annual inflation rate to decrease to 3.6%, down from 3.8% in September, which is nearly 100 basis points below the MPC’s midpoint target of 4.5%. This suggests the MPC is likely to lower the repo rate by at least 25 basis points on Thursday.
Globally, investors will monitor inflation data from the UK, Canada, Japan and the European Central Bank, which are expected to provide further insights into global economic trends.
Chris Harmse is the consulting economist at Sequoia Capital Management and a senior lecturer at Stadio Higher Education.
BUSINESS REPORT