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EU: Rand and shares reflect global optimism
 
Johannesburg – Share prices around the world recovered strongly over the last few days as more and more positive news on the global economy emerges. The rise in crude oil and metals as a proxy to world optimism drove the surge in stock markets. On Wall Street all four main indices reached record levels yesterday. The S&P 500 index, the Dow Jones industrial average, the Nasdaq index and the Russell 200 index, climbed to their all-time peaks on the same day for the first time since 1999.The oil price surged towards $50 per barrel. It helped the dollar to weaken and that also gave some positive signs to the market.Read also: Rand vulnerable to stronger dollarLocal shares on the JSE also recovered since last Monday as commodity prices increase in tandem with the positive international economic sentiment. Although the risk of a possible downgrade to junk status may cause the rand exchange rate to depreciate considerably and bond rates to surge, it seems that both of them started to discount the possibility that a total fully fledged junk grading is not due. Financial markets now seem to expect that Moody’s Investors Service is likely to downgrade the government’s sovereign debt by one level or to BBB-, in line with Fitch and S&P Global Ratings. It is discounted that especially Fitch is bound to keep the BBB- rating intact with no change. The rand improved by more than 3 percent against the dollar since last Thursday and bond rates decreased by 2 percent.New jobsAlthough South Africa’s unemployment rate increased by 0.5 percentage point from 26.6 percent in the second quarter to 27.1 percent during the third quarter, the creation of 288 000 new jobs indicates that the economy is likely to provide more jobs in quarters to come. The labour force in fact increased by 527 000 new entrants as more previously discouraged workers entered the job market. In reaction to this data the rand appreciated even further and shares on the JSE continued to rise.Since Donald Trump’s election, optimism emerges that his plans to cut taxes and boost fiscal spending will benefit growth industries and will put the US on a fast track. Although the downside may be a rise in inflation and interest rates, it may be the right thing to bring real interest and bond rates back to realistic levels that in the medium to long run will benefit not only the US…

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