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South Africa had a quiet week on the economic front, but the rand and the gold price were affected by the election of Donald Trump as the next US president. The PMI stayed above the 50-mark in South Africa, while electricity production and consumption increased in September.
Lisette IJssel de Schepper, chief economist at the Bureau for Economic Research (BER), points out that the rand was initially not spared from currency volatility after the results of the US election, but came back quite nicely later in the week and managed to strengthen by more than 2% from last Thursday against the dollar and the euro.
In addition, she says, the knee-jerk reaction following Trump’s victory, as well as the concerns voiced by rating agency Fitch about the economic and fiscal projections presented in last week’s Medium Term Budget Policy Statement may have added to the local woes early in the week.
“The stronger dollar meant that oil and gold prices declined, although oil was still up from last Thursday. Looking ahead, Trump’s “drill, baby, drill” policy could actually lead to lower oil prices over time if US supply ramps up (by even more).
“It will be interesting to see how Musk’s pro-solar and battery stance will come into play. Trump has said he will, again, pull out of the Paris climate agreement.”
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Bianca Botes, director at Citadel Global, says this week has been anything but dull for the financial markets, with Trump securing a win, the Bank of England (BoE) and the US Fed both cutting rates by 25 basis points and China’s anticipated fiscal meeting over the weekend.
“Brent crude oil futures hovered around $75.10/barrel on Friday, heading for a weekly gain as investors evaluated the effects of the Fed’s recent rate cut and the anticipated policies of the Trump administration. Expectations of potential sanctions by Trump on oil producers like Iran and Venezuela also boosted prices due to likely supply reductions.
“Gold prices hovered near $2,700/ounce, following the Fed’s interest rate announcement and policy meeting, after trading at a three-week low. After Trump’s victory, gold declined by 3% as the dollar strengthened, reducing demand for safe-haven assets.”
She notes that anticipated higher long-term interest rates, driven by Trump’s policies on tariffs, tax cuts and deregulation are fuelling expectations of increased inflation and larger deficits.
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“Meanwhile, the South African rand strengthened to R17.30/$, tracking gains in commodities. The rand is well positioned to gain further momentum, as all eyes are now on this weekend’s Chinese fiscal meeting.”
Isaac Matshego and Busisiwe Nkonki, economists at the Nedbank Group Economic Unit, say with emerging market currencies under pressure, the rand depreciated to R17.80/$ in early trade on Wednesday morning before pulling back to R17.31/$ late on Thursday.
On Friday morning it was trading around R17.40/$, supported by the Fed’s rate cut. They note that Fed Chair Jerome Powell hinted that the Fed would proceed carefully in easing policy.
“Given that some of Trump’s policies are expected to stoke inflation, market expectations of Fed cuts in 2025 have been revised lower, weighing on all emerging market currencies.”
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The latest S&P Global and Absa PMI (Purchasing Managers’ Index) report for October shows similar trends, with both indexes dipping slightly while remaining above the critical 50-point mark. The S&P PMI fell to 50.6 from September’s 13-month high of 51, while the Absa PMI eased to 52.6, down from a revised 53.3 in September.
Katrien Smuts, economist at the BER, says both indexes benefitted from a reduction in input costs, largely driven by lower fuel prices. “Encouragingly, forward-looking indicators remained robust and in expansionary territory.
“However, the employment indexes are a soft spot. Although firms report a modest improvement in consumer demand, it has yet to translate into meaningful job growth. Sustained increases in consumer demand will be essential to drive broader employment gains.”
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According to Statistics SA electricity production and consumption data increased in September. Electricity generated (produced) increased by 8.6% on an annual basis, with the seasonally adjusted numbers reaching just over 20,000 gigawatt-hours in September.
Electricity distributed (consumed), meanwhile, lifted by 6.1% on an annual basis. The total volume distributed in September amounted to 17 661 gigawatt-hours.
Smuts says it is a positive sign for gross domestic product (GDP) in the third quarter that more electricity was generated, the second quarter-on-quarter uptick amid the extended absence of load-shedding.
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South Africa’s gross foreign reserve holdings were down by $605 million in October from their all-time high of $63.6 billion in September. Smuts says the decline was mainly due to foreign exchange reserves being almost $1.2 billion lower, while an increase of $548 million in gold reserves provided some offset to the overall decline.
Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole and Koketso Mano, economists at FNB, say while gold reserves continued to increase, Special Drawing Rights (SDR) holdings and foreign exchange reserves declined. “Payments were made on behalf of government, including a partial repayment of an International Monetary Fund loan.”
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New vehicle sales grew by 5.5% in October after shrinking by 4.1% in September and 4.7% in August. Matshego and Nkonki say the outcome was better than their forecast of -2.2%.
“The improvement was driven by passenger vehicle sales, while sales of light, heavy and extra-heavy commercial vehicles deteriorated further. In total, 47 924 vehicles were sold compared to 44 081 units in the previous month.”
They say while the increase reflects seasonal sales to the rental industry, the uptick also points to a likely turnaround in consumer demand in response to steadier household finances as inflation cooled significantly and interest rates declined in September.
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