The JSE was weaker on Friday midmorning, while its global peers were mixed as investors digested this week’s data.
In the US, producer inflation data released on Thursday showed a slightly higher-than-expected increase.
US producer inflation rose 0.4% in November, slightly higher than expected. The producer price index (PPI) marks a 3% year-on-year increase. Core PPI rose 0.2%, in line with expectations.
The US PPI data follows a 2.7% year-on-year increase in US consumer inflation. Traders expect a 25 basis point (bp) rate cut at the Fed’s meeting next week, but weaker job market data may challenge this outlook.
US jobless claims rose to 242,000 last week, exceeding forecasts of 220,000. This marks the highest level since early October, reported Bloomberg.
SPI Asset Management partner Stephen Innes said the data indicated an imminent economic downturn, however, it challenged the market’s hopes for a prolonged slowdown in inflation and interest rate cuts.
“The weaker job market data may be of greater concern to the market, as the Fed is sensitive to signs of a softening labour market,” Innes said.
At 11.35am, the JSE all share had lost 0.21% to 86,784 points, with major indices mixed, while the top 40 was down 0.26%.
At the same time in Europe, the FTSE 100 and France’s CAC 40 were little changed, while Germany’s DAX gained 0.26%.
Earlier in Asia, the Shanghai Composite fell 2.01%, Hong Kong’s Hang Seng 2.18% and Japan’s Nikkei 0.95%.
Locally, producer prices remained in deflationary territory in November as SA’s producer price index (PPI) contracted 0.1% year on year after a 0.7% decline in the previous month.
On a monthly basis, November’s headline reading was unchanged from October with fuel prices again emerging as a key driver of producer price inflation.
Meanwhile, employment in the formal nonagricultural sectors of the economy, as reflected in the Quarterly Employment Survey (QES), contracted by about 130,000 jobs in the third quarter.
“The [local PPI] deflationary trend supports the case for three more 25bp rate cuts in 2025, contingent on stable fuel and food prices,” said TreasuryOne currency strategist Andre Cilliers. “This also provides a window to lower the inflation target, aligning with the [Bank’s] conservative stance.”
“The labour market remains a concern. Persistent unemployment and weak job creation despite a growing population are key concerns,” said Cilliers. “However, there are positive developments in the private sector’s involvement in SOEs [state-owned enterprises], which will support the economy.”
The rand was weaker on the day, but remained steady below the R18 against the dollar mark.
Cilliers said the local currency is expected to benefit from several positive drivers. “The recent deflationary trend in the SA PPI reinforces the SA Reserve Bank's room to cut interest rates, which should support the rand sentiment.”
“Additionally, incremental private sector involvement in state-owned enterprises boosts confidence in the economy. Global tailwinds, including Fed easing expectations and China’s stimulus measures, also improve sentiment towards emerging market currencies.”
At 11.13am, the rand had weakened 0.36% to R17.8663/$, 0.35% to R18.7031/€ and 0.18% to R22.5668/£. The euro was little changed at $1.0468.
Looking ahead, Cilliers said the rand could test the upper limit of R17.9050/$ if global sentiment turns risk-averse or domestic data disappoints. However, sustained reform momentum could drive the rand closer to R17.6050/$ or beyond in the first half of 2025.
In the commodities markets, gold lost 0.35% to $2,671.11/oz, while platinum was little changed at $929.2/oz. Brent crude was 0.63% firmer at $73.8 a barrel.
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