Surging gold and platinum shares created a wave for the JSE All Share and the rand to trade at their highest levels so far this year. The resource sector led the gainers as gold was trading near highs last seen in October. The year-to-date gain for gold is close to 9%, making it the best-performing asset so far.
The upward march in bullion was underpinned by the recent risk-off sentiment that has beleaguered the global market. A decrease in optimism that the Fed will be able to hike rates in March increased the appeal of non-yielding gold. Further support for gold came from a weaker greenback as investors diminished their dollar deposits due to the Fed’s relatively dovish outlook.
Other commodities are likely to remain steady in lacklustre trading as Asian liquidity dries up during the Lunar New Year holiday celebrated across large parts of the region.
Capilis has detected a strong correlation between crude oil and the rand/dollar exchange rate. With reports of continuing talks between OPEC and non-OPEC countries, such as Russia, any development can swing oil and the rand in any direction.
US crude oil inventory data due on Wednesday, and Natural Gas Storage figures due on Thursday, will offer more clues to the direction of commodities. Brimming crude inventories in the US pose a risk to a further decrease in the price of oil.
We expect continued volatility on upward moves from short-covering, an overall bearish market (as long as producers don’t reach an output agreement) and China’s slowdown spreading across the world.
Fed Chair Janet Yellen testifies on Thursday and Friday at the Semiannual Monetary Policy Report before the Senate Banking Committee in Washington DC. Employment data last week was mostly mixed but average hourly earnings improved, indicating that a low unemployment rate is increasing the cost of labour. Increased hourly earnings should trickle down into the real economy through higher expenditure, increasing economic activity. This display of economic resilience in the US brings validity to Fed hawks such as Cleveland President Loretta Mester and Vice Chairman Stanley Fischer’s comments that the “solid” job and income growth “suggest that underlying US economic fundamentals remain sound.”
German CPI due on Friday will be closely watched by the European Central Bank (ECB) with German prelim GDP and eurozone flash GDP released on the same day. The euro area has tried to beat deflationary pressures with expansionary monetary policy. Increased stimulus at the ECB’s next meeting will support positive sentiment.
Other market moving data coming out this week:
Monday:
- US Mortgage Delinquencies and Labor Market Conditions Index
Tuesday:
- EU German Trade Balance
- South Africa Unemployment Rate
- Great Britain Trade Balance
- US JOLTS Job Openings
Wednesday:
- GBP Manufacturing Production and Industrial Production
- US Crude Oil Inventories and Federal Budget Balance
Thursday:
- South Africa Mining Production and Manufacturing Production
- US Unemployment Claims and Natural Gas Storage
Friday:
- EU German Prelim GDP and German Final CPI
- EU Flash GDP
- US Prelim UoM Consumer Sentiment
Giacomo Bonavera is head of foreign exchange trading at Capilis Asset Managers. Click here to visit the firm’s website.