JSE recovers as Budget Speech postponement signals GNU strength - Chris Harmse
The news that the National Budget that could not be presented by the Minister of Finance last Wednesday brought much controversy amongst politicians, economists, market analysts and investors during the latter part of last week.
The Rand exchange rate, bond rates and share prices on the JSE initially reacted in a sceptical and negative manner after the announcement by the speaker of parliament that the Budget Speech would not be read and was postponed. The JSE All Share Index (ALSI) quickly lost 0.8% of its value and the Rand depreciated by 20c against the dollar.
As the main reason for the postponement became clear—that the 2.0% increase in VAT was not acceptable to opposition parties and even members of the ANC —sentiment started to turn positive as analysts and investors believe that the ANC will not be allowed to put party objectives ahead of the Government of National Unity (GNU) objectives.
The backlash of public opinion against the Treasury, especially as it became clear from the embargoed speech that the increased VAT rate will partially be used to finance the agreed increase in civil servants’ salaries, came as a wake-up call for the ANC. The main thrust of these negative opinions is that the government takes more money from the poor to finance salary increases in the public sector.
Financial markets, economists and foreign investors seem to feel now that this postponement proves that the GNU is well and alive, and that the ANC cannot simply have a hijack policy for its own purpose, and investor sentiment returned to its positive mood over the last two days of the week.
Despite the sideways movement in precious metal prices - gold at $2 936 (R53 788) and platinum at $972 - since last Wednesday, the ALSI recovered almost fully from its record level of 89 061 points last Tuesday to 88 914 points on Friday, gaining 0.2% for the week and is 5.7% higher year-to-date. This is in contrast with share prices on global markets, which mostly experienced a noticeable negative trend last week.
In the US, the Dow Jones Industrial Index lost 2.9% last week, the S&P 500 traded down by 1.4% in the last five days, whilst the Nasdaq moved downwards by 1.8%. The backlash of the effect of US President Donald Trump’s tariff policies now seems to make markets nervous as global and even US economic prospects may move negative if retaliation policies by the rest of the world are imposed against the US.
On the foreign exchange market, the Rand against the dollar quickly wiped out the 20c loss to R18.56 to the dollar after the announcement of the postponement of the Budget Speech and closed Friday at R18.32, the same level as the previous Friday. Against the Euro, the Rand appreciated by 6c last week to close at R19.16/€ and against the Pound, the Rand recovered by 12c on Thursday and Friday.
This coming week, Statistics South Africa (StatsSA) will release the inflation rate for January on Wednesday. It is expected that the Consumer Price Index will increase by 3.2%, compared to the 3.0% inflation rate in December 2024. On Thursday, the producer price inflation rate for January will be announced. The market expects that prices at the factory gates will increase by 1.0%, compared to the annual increase of 0.7% in December 2024.
StatsSA will also announce the trade balance figures for South Africa on Friday. Elsewhere, the US will release its second estimate of its gross domestic product (GDP) economic growth rate during quarter four 2024. It is expected that GDP growth will be 2.3%, down from the 3.1% growth rate during quarter three 2024. The US will also publish its latest durable goods orders numbers, and personal income and spending data during January.
Chris Harmse is the consulting economist of Sequoia Capital Management and a senior lecturer at Stadio Higher Education.
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