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Investors with an appetite for risk feasted last week as they cooked up equities while safe haven bonds sold off. The JSE rallied around 3.5% coming close to within 4% of the October and November highs.
The JSE rallied on the back of global equities as investor sentiment shifted towards the positive US economic data that suggested the biggest economy could sustain an interest rate hike.
Capping the rand’s strength was ratings agency Fitch’s warning on Thursday that political concerns ahead of the August local elections posed a risk to the country’s credit status.
Fitch and Standard & Poor’s are expected to announce their assessment of South Africa’s sovereign debt next month, leaving investors jittery.
While policymakers fear that a downgrade this week could roil the local currency and South African stocks, some fund managers see it as a bond-buying opportunity.
With global equities within a wide range since beginning 2015 and bonds in the developed world languishing near zero, investors might welcome the credit downgrade.
Our bonds are yielding a return of around 9%, compared to near zero in Europe, and 90% of the debt is in local currency.
Some key indicators that the credit rating agencies are focusing on are: weak growth, large deficit, high inflation and political scandals.
US
Coming up this week is the Non-Farm Payrolls data, which will be closely followed as a figure above 160 000 will indicate continued strengthening in the labour market. 170 000 is expected.
Data on Friday confirmed that the US economy maintains steady, albeit slow, growth.
Europe
The European Central Bank (ECB) delivers its monetary policy decision and press conference on Thursday. The ECB is expected to keep rates on hold and reaffirm its focus on its Corporate Sector Purchase Program and TLTRO II for banks, still to be launched.
Commodities
Supply disruptions in America, West Africa and Asia helped push up the price of oil to $50, but a report from Saudi Aramco showed that the state oil company recorded its highest level of production.
Brent crude oil found sellers at the $50 per barrel mark as traders anticipated intervention from the Organization of the Petroleum Exporting Countries (Opec) through excess production to foster its own global market share.
Also weighing on the oil price is speculation that prices above $50 open the door for shuttered natural gas producers to re-enter the market.
Opec embarked on an effort to recapture share in the oil market by ramping up production in 2014. The increased supply in the market led prices from above $100 dollars per barrel to just $27.08 per barrel in January 2016.
Gold dipped to its lowest level in almost eight weeks and had its biggest weekly loss in nine. Speculation that the Fed would hike rates in June strengthened the value of the dollar and weighed on gold.
Important announcements to be released this week:
Monday
• EU Business Confidence
• German Prelim CPI
Tuesday
• SA M3 Money Supply, Private Sector Credit and Trade Balance
• EU Unemployment and CPI
• US Personal Spending, Personal Income and CB Consumer Confidence
Wednesday
• SA Barclays Manufacturing PMI and Total New Vehicle Sales
• CN Manufacturing Official and Private Surveys
• GB Markit Manufacturing PMI
• EU Markit Manufacturing PMI
• US ISM Manufacturing PMI
Thursday
• SA Standard Bank PMI
• OPEC Meetings
• GB Construction PMI
• US Crude Oil Inventories
Friday
• GB Service PMI
• US USM Non-Manufacturing PMI
Giacomo Bonavera is head of foreign exchange trading at Capilis Asset Managers. Click here to visit the firm’s website.
