The South African market today
This will probably be the first week of normalcy as market participants return to their desk to strategies on their views on positioning and outlook in global markets. Our local market continues to grind forward and it has been a grind as global markets continue to affect our local market. Fears of inflation have increased, and anticipation of less accommodative monetary policy has shocked the market. I think at this moment it is no longer a matter of when interest rates will rise but by how much will they rise as our local SARB tries to monitor and control interest rates. The market is currently higher by almost 1% at midday on Wednesday.
Inflation
Stats Sa released the headline inflation numbers for December and inflation climbed to the highest number since 2017. The headline number came out at 5.9% close to the upper band of the 3-6% target band set by the SARB. The biggest increases in the inflation basket are the cost of fuel which was up more than 40% and the cost of food. Inflation does not seem to be abating but a closer look at the numbers you will see that service inflation is stagnant whilst goods inflation is the one shooting up. Is this inflation demand led? This question is answered by understanding where core inflation is this number which excludes temporary price volatility often found in food and energy and this remains on the lower end of the target band which shows very little demand in the economy. Then what is driving prices remains shocks to the supply side of production which has increase cost of inputs which has led to increases in prices. This raises the prospects of a more aggressive rate hike path locally in South Africa
Brent Crude
Brent crude reached the highest level in seven years breaching the $89 a barrel mark. This has primarily been driven by an unexpected outage in a pipe between turkey and Iraq which threaten supply. Geopolitics in Russia and UAE also threaten supply for oil and this has increased the price. Opec+ is already having issues with adding supply to the market as production from its member states has been falling short. This has proven to influence oil sensitive stocks Sasol has been on a tear in the past 2 trading sessions with gains of more than 10% and MTN as well has come to the fore and has had good gains.
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