Markets opened August on a positive note as South African stocks hovered around record highs, nearly touching the 70 000 points mark, while the rand rose the highest in two weeks on Monday.
The JSE All Share Index traded towards historic highs, breaching 69 500 index points during early trade amid easing concerns over China’s regulatory crackdown and optimism around a US infrastructure spending bill.
Optimism around US President Joe Biden’s massive infrastructure plan has helped boost appetite towards riskier assets.
The bill calls for $550 billion in new spending over five years above projected federal levels, with substantial expenditures on roads, bridges, waterworks, broadband and the electric grid.
However, the All Share Index ended the day 0.21 percent lower to 68 822 points, dragged by the decline in industrial, resources and financial stocks.
South African Reserve Bank Governor Lesetja Kganyago has recently cautioned that the effects of lockdowns and deadly riots would be felt for some time and will likely slow the recovery from 2020’s pandemic-induced contraction.
South Africa’s industrial activity in July was hampered by the duration and severity of the third wave of Covid-19 and associated tougher restrictions, as well as the recent unrest in parts of the country.
The Absa Purchasing Manufacturers Index (PMI) fell sharply to 43.5 index points in July, from 57.4 points in June, the lowest level since May 2020 during the height of the lockdown restrictions.
This was a setback to manufacturing output recovery at the start of the third quarter of 2021, and signalled the steepest deterioration in business conditions since the beginning of the lockdown.
However, Absa said the lifting of some of the level 4 restrictions and calm returning to KZN and Gauteng should lift factory output from August and manufacturers’ expectations
Meanwhile, the rand strengthened 0.24 percent higher to R14.39 against the greenback.
This was the rand’s highest level on a closing basis since mid-July amid a softer dollar after fresh reassurance by the US Federal Reserve that interest rate hikes are seen as distant.
Investec chief economist Annabel Bishop said the rand would have seen substantially more weakness were it not for the support it had from still elevated metal prices. Bishop, however, said the rand could still pull stronger this week.
“To average R14.45/$1 this quarter, the rand would need to average about R14.40/$1 for the remainder, which is easily doable, with commodity prices likely to remain largely elevated for the rest of this year, while yield-seeking behaviour could strengthen,” Bishop said.