The rand retreated to its lowest in two weeks yesterday (TUES) and stocks on the JSE extended losses, in spite of improving metals prices, after economic growth in South Africa surprised on the downside in the third quarter of 2023.
Statistics South Africa (Stats SA) yesterday said gross domestic product (GDP) for the three months ended September fell into contraction, dipping by 0.2% in the third quarter compared to the downwardly revised 0.5% growth in the second quarter.
Stats SA said economic growth was being hobbled by the deepening energy crisis and the logistics bottlenecks as agriculture, manufacturing and construction were the most impacted sectors.
PPS Investments portfolio manager Reza Hendrickse said although growth continued to be unimpressive, it had managed to exceed expectations in most quarters during recent years.
“Going forward, economic growth is expected to accelerate next year from this year’s low base. This is largely a function of load shedding easing somewhat as the power crisis comes under control,” Hendrickse said.
“On the consumer side, lower inflation is also positive, while any rate cuts from the SARB should also support spending growth. Any softness in global growth next year, however, may put a dampener on temporary respite in South Africa.”
The weak GDP outlook is reflective of the fragile economic environment, and the markets reacted accordingly in spite of a separate report showing the country’s private sector activity stabilised in November after two months of downturn.
The rand dipped below the R19-mark to the US dollar at 5pm as the greenback continued to firm as the markets were not satisfied with the subdued economic growth.
Investec chief economist Annabel Bishop said the domestic currency has failed to convincingly pierce the R18.00/$1 resistance level, only momentarily trading below it, despite US dollar weakness.
Bishop said the fundamental weaknesses in the South African economy deter positive investor sentiment too.
“The strength in metals prices should have strengthened the rand substantially in November, but substantially lower performance of Transnet’s freight services has meant exports have been severely curtailed instead, and the rand has lost out,” Bishop said.
“Rand weakness also adds to higher inflation, and the poor performance of Eskom and Transnet has had wide-ranging, detrimental ramifications for South Africa, with the negative effects not expected to end over 2024 either.”
The US dollar recovered on Monday as traders trimmed short positions ahead of key US economic data and increased geopolitical tensions.
The strong US dollar saw commodity prices easing slightly, with gold falling from an all-time high of $2 140 on Monday to $2 012 yesterday as concerns about the US Federal Reserve (Fed) outlook for interest rates.
Neil Wilson, chief market analyst at global financial services firm Finalto, said gold snapped back lower after hitting a fresh all-time high and stocks eased back.
“Gold’s advance to record highs is part of a wider rally in risk assets that began in November as yields began to tumble on investors becoming more certain the Fed and other central banks would start cutting rates soon,” Wilson said.
“Strong central bank purchasing, seasonal flows and geopolitical tensions have added to gold’s appeal lately. My hunch is this is flows catching the tailwinds of markets betting big on rate cuts at the same time as thinking inflation is going to remain higher.
“Not sure this is too soon for gold – the reaction to the aggressive buying yesterday suggests most agree but prices should remain supported unless we see yields really flip higher again.”
Meanwhile, the JSE all share index extended initial losses to trade around 75 215 index points by 5pm after three straight sessions of gains, as investors digested poor domestic GDP data.
Resource-linked sectors were the hardest hit, with Impala Platinum down 5.3% to R67.69 per share, African Rainbow Minerals falling 5.2% to R175.63, Thungela Resources easing 3.4% to R141.10 per share, and Sasol down 3.2% to R194.61 per share.
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