Stocks on the JSE traded slightly higher and the rand started the week on a firmer foot at a two-week high yesterday as stronger commodity prices provided some support for local stocks and the currency, while the markets were awaiting major central banks’ interest rates decisions and South Africa’s mid-term budget.
The JSE All Share Index rose 0.9% to 70 059 points yesterday following three consecutive days of decreases, while the rand also strengthened 0.4% to R18.77 against the US dollar.
Gold miners such as Sibanye-Stillwater led the surge in the JSE as it rose 3.5% to R24.28 per share followed by DRDGold at 2.8% higher to R16.83 per share as gold prices rallied held above $2 000 (R37557) an ounce earlier in the day for the first time since May.
The gold price jumped in the wake of rising geopolitical anxieties in the Middle East, but gold mining is a small sector on the JSE these days.
The increasing likelihood of a protracted Israeli ground offensive into Gaza is seeing investors move into the safety of gold, with the yellow metal holding on to the $2 000 level for now.
Traders are also awaiting interest rate decisions from the Bank of Japan, the Federal Reserve and the Bank of England, as well as key economic data from China and the US and more corporate earnings.
The Fed expected to keep rates on hold and with geopolitical tensions and uncertainty still clouding market direction while the Bank of Japan is also expected to keep rates on hold.
However, markets are pricing in a potential policy shift as Japan grapples with rising inflation.
TreasuryONE currency strategist Andre Cilliers said the rand had been given momentum by the movements in the price of gold as South Africa is one of the largest gold exporters.
“The rand is trading slightly firmer as it holds on to gains made on Friday. The stronger commodity prices provide some support for the rand in the short term, but we could see some weakness in the run-up to the MTBPS,” Cilliers said.
Locally, all eyes turn to the government's Medium-Term Budget Policy Statement (MTBPS) tomorrow, an outline of fiscal plans and forecasts for the next three years.
Finance Minister Enoch Godongwana is poised to unveil a gloomy fiscal outlook, given the decline in the commodity windfall and the sluggishness in domestic growth.
The substantial rise in South Africa's fiscal risk premium and the notable steepening of the SA government bond (SAGB) yield curve throughout 2023 are clear indicators of the country’s declining fiscal health, in addition to the prevailing global headwinds.
Anchor Capital’s investment analyst, Casey Delport, said the two primary factors driving this decline were the energy and transport logistics crisis, and the negative feedback loop involving underperforming state-owned enterprises and government bailouts.
Additionally, Delport said international factors, including falling commodity prices and increasing US Treasury yields, had served to intensify the pressure on an already fragile fiscal situation further.
“Overall, the market focus will be honed on how National Treasury plans to finance the more significant and largely expected budget deficit. The prospect of an enhanced energy supply in 2024, marked by the reactivation of four Kusile units, one Medupi unit, and both Koeberg reactors by mid-2024, holds the potential for a recovery in corporate earnings within South Africa,” Delport said.
“In terms of expenditure, the finance minister has highlighted the challenging fiscal situation. Specific directives to government departments regarding spending restraint for the remainder of the current fiscal year and policy priorities in light of worsening fiscal metrics, especially in the lead-up to the 2024 elections, will only become apparent in February 2024 when the full budget review is presented.
“Still, beyond the upcoming budget reviews, SA’s medium- to long-term fiscal trajectory requires a credible economic growth reform agenda, without which fiscal sustainability will not be possible. Much rests on the hope of forming a coherent and stable government after the 2024 elections.”
BUSINESS REPORT