South African and global share prices remained again under pressure for the fifth consecutive week. The US job data released on Friday warns of a strong possibility of another interest rate hike by the US Federal Reserve at their next meeting from October 31 to November 1.
After the release of the September non-farm payrolls, the odds of a November rate hike in the Fed funds market rate has risen to 30% from 22% earlier last week. US Treasury yields, in reaction, shot up by 6 basis points, while the US dollar continues to move stronger against most currencies.
The jobs data tells a story that the US economy is still well and alive and that a recession is not on the horizon. The US unemployment rate remains at 3.8% in September (year-on-year) as the economy created a massive 337 000 more jobs in September and a much higher-than-expected 178 000 new employment opportunities.
Although the increase in the monthly hourly wage rate came down from 0.3% to 0.2%, the annual hike in the wage rate remains above 4.0% (4.2%). This remains inflationary and much higher than the target of 2.0%.
The US job numbers, the sharp increase in fuel prices on Wednesday, as well as the rand-to-dollar exchange rate that traded 60 cents higher on R19.50 against the dollar on Thursday, mostly contributed towards a sell-off of domestic equities.
On the JSE, the all-share index lost -1.72% over the past seven working days, is now down by -4.25% over the last month and has lost -2.46% since the beginning of the year. The Industrial 25 index was down last week by -0.2%, lost -5.1% over the past month, but still trades at 8.6% up for the year-to-date.
The Financial 15 index was down by -0.92% over the past seven trading days, increased by 4.6% over the past month and remained positive by 3.4% for the year. The resources sector on the JSE board, however, suffered big losses. Over the past seven trading days the RES10 index lost -3.4% last week, traded down by -3.0% over the last month to date and is down by -22.5% for the year -to date.
The sharp decrease in oil prices since last Wednesday has brought hope for a sharp decrease in petrol prices at the beginning of November. The Brent oil price came down by more than $10 (R193) per barrel last week.
Although the rand depreciated strongly against the US dollar, the price for petrol was over recovered by 148 cents per litre last week, but diesel remains under pressure with a 9 cents per litre under recover since the announcement last week of the sharp increase by R1.95 cents per litre from Wednesday, October 4.
US markets recovered on Friday as bond yields and oil cooled down. The Dow Jones Industrial Index ended lower by -0.3% last week, but recovered strongly on Friday. The index is now for the year-to-date flat gaining only 0.7%.
The S&P500 also moved sideways last week and traded higher by 0.5% The Nasdaq composite index ended last in the green gaining 1.6%. US indices over the next week are expected to move volatile against lower oil prices on the positive side, but the possibility of a rate hike by the Fed on the negative side.
This coming week global and local financial markets awaits the publication of the Federal Open Market Committee minutes of their latest meeting in September. The release of the US inflation and core inflation rates for September 2023 on Wednesday will also draw attention.
It is expected that the US core inflation rate (indicator targeted by the US Fed) will only decrease marginally from 4.3% in August to 4.1% in September. This is still double the Fed target of 2.0%. The main inflation rate is expected to have moved sideways to 3.6% against 3.7% recorded in August.
Domestically, Statistics South Africa will release the latest manufacturing and mining production figures for August 2023.
Chris Harmse is the consulting economist of Sequoia Capital Management
BUSINESS REPORT