The South African Markets in Focus
The market continues to be a plethora of contradictions. Last week saw gains for risk assets globally and our local bourse benefited in the backdrop there are concerns of a rising inflation path which threatens global economic recovery as supply side shocks of energy which powers the economies push the price of energy commodities higher. The northern hemisphere is in the grips of a cold winter, and they are also faced with a shortage of natural gas, diesel distillates and thermal coal for electricity generation. This poses a threat to short to medium term inflation which could force global central banks to start raising rates quicker than what the market anticipated. The market has continued higher in the first few days of the week and the only one economic data point is important the CPI numbers being released by Statistic South Africa.
A look at inflation
The pandemic continues to redefine how normative economics have been taught and understood by economists and market participants alike. With record low interest rates and a negative real rate and a higher short to medium term inflation outlook due to sustained high administered prices and higher cost for energy and fuel. We will therefore experience a heighted level of caution being released by the SARB for consumers and business to get ready for a higher interest rate to contain inflation in the target band. The SARB has shown to well that they will move ahead of global interest rate decision and make their decisions to contain our inflation and money supply.
Sasol continues to trade in large ranges and that’s because of its 0.86 correlation coefficient to the Brent crude/South African prices with crude at all time highs and the wide ranges that the rand trades in as a barometer on how market participants view emerging markets. The rand has appreciated in the week on the back of dollar weakness. Sasol is set to release a trading statement on 21st
October 2021. With the brent price having increased to above $80/$ the reserve inventory in the US will be watched to better understand if the supply shortages have been replenished and the US has enough diesel distillates for travel and for heating. It will also be good to see if demand has increased in their chemical and fuel business
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