South Africa's financial markets remain flat despite Sona impact

The equity and capital markets traded flat last week for the second week in a row. The price for gold and platinum recovered through the week, with the gold price breaking again through the $5 000 per ounce last week with the Rand improving.

The State of the Nation (Sona) on Thursday had no serious effect on markets on Friday. The All Share index contracted on Friday sharply with 1 630 marks or 1.3% and ended the week gaining only 0.4% to close at 120 584 points. After the Sona speech on Thursday the Rand opened Friday morning with 9 cents weaker against the US dollar, 11 cents against the Euro at R19.06/ € and with 6 cents against the pound at R21.80/£.

Financial markets and traders are looking out what the national budget will entail, as well at the news around the US inflation rate and unemployment rate that were published. The strong recovering in the gold price to $5 044 on Friday, from $4 964 /$ the previous Friday and the price of platinum to $2 077 from $2 003 on Friday, had strengthened the Rand on Friday.

Rand continues it strong rally

Despite speculation against emerging market currencies and an even stronger dollar against the Pound and the Euro, the Rand continues to move stronger against the Dollar, Pound, and Euro. The currency had gained 10 cents against the US last week, trading lower than R16/$ (R15.95/ $) on Friday evening, and is now 18 cents stronger for the month and 55 cents (3.8%) stronger than its opening value of R16.50/$ at the beginning of the year.

Although one can argue that it is rather the US dollar that moved weaker against most other currencies, the Rand improved by 5 cents to R18.92/ € last week, is stronger by 20 cents for the month and 53 cents (2.9%) down than the R19.45/€ at the beginning of the year. Against the Pound the currency appreciated by 5 cents to R21.78/£ last week, improved by 16 cents for the month and strengthened by 44 cents (2.6%) from the beginning of the year (R22.32/£).

The stronger Rand contributes towards softening an increase in fuel prices at the beginning of March due to the strong rally in the oil price. By Thursday, the price of petrol was over-recovered (meaning a drop in March) by 7 cents per litre and the diesel price was under-recovered (meaning an increase in March) by 42 cents per litre. The fuel price may however increase further in March or April if the Minister of Finance hikes the fuel level during its budget speech on 25 February.

US non-farm jobs and inflation rate data

US total nonfarm payroll employment rose by 130,000 in January, and the unemployment rate came down from 4.4% in December to 4.3 %, the US Bureau of Labor Statistics reported last Wednesday. This reading followed the 48,000 (revised from 50,000) increase recorded in December and came above the market expectation of 70,000. Annual wage inflation, as measured by the change in the Average Hourly Earnings, held steady at 3.7%, compared to the market expectation of 3.6%. The annual inflation rate in the US slowed to 2.4% in January 2026, its lowest level since May, down from 2.7% in each of the previous two months and below forecasts of 2.5%.

Both these indicators improved towards the Federal Reserve targets of 4.0% for unemployment and 2.0% for the inflation rate. The Fed, therefore, is expected not to decrease its Bank rate soon, although the new appointed chair Kevin Warsh has an unusual mandate to achieve something that has rarely been seen outside of wartime: an economic growth rate of 15%.

"We should be at 15%," US President Donald Trump said in an interview with FOX Business aired Monday. “If he does the job that he is capable, we can grow at 15%. I think more than that." Warsh, therefore, may affect bigger and more rate cuts soon.

Prospects for the coming week

This coming Tuesday the release by StatsSA of South Africa’s unemployment rate for Q4 (year-on-year) will be of importance, especially on the back of the president's Sona of last week. It is expected that the unemployment had increase from 31.9% in quarter three to 32.3% in quarter four. StatsSA will also announce the inflation rate for January on Wednesday. It is expected that the growth in the CPI will be 3.7% against the inflation rate of 3.6% and will indicate that the effect of higher meat prices due to the Mouth and Feet disease and the increased electricity prices announced by Nersadecrease will keep pressure on the Reserve Bank’s Monetary Policy Committee not to lower the repo rate soon.

Globally the US Fed's Federal Open Market Committee  meeting’s minutes of its previous meeting will be released on Wednesday. The US income and spending data for January will be published on Friday, while the UK will announce its latest unemployment and inflation rates.

Chris Harmse is the consulting economist of Sequoia Capital Management and a senior lecturer at Stadio Higher Education.

*** The views expressed here do not necessarily represent those of Independent Media or IOL.

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