South African Markets Slip Amid Rising Global Oil Prices
The South African rand and government bonds fell on Monday as rising oil prices weighed on risk appetite. Investors await domestic inflation data on Wednesday.
Financial markets in South Africa started the week under pressure as investors anticipated domestic inflation data and reacted to rising global energy costs. The local currency and government bonds both weakened amid reports of renewed tensions in the Middle East.
Global risk sentiment was hit by reports that the Strait of Hormuz had been closed, which sent the price of Brent Crude Oil higher. As a net importer of fuel, the South African economy is particularly vulnerable to spikes in energy prices. This volatility comes as the United States and Israel continue their involvement in a conflict that began in late February, prompting retaliatory strikes from Iran across the Gulf.
At 1340 GMT, the USD/ZAR exchange rate was at 16.3325, down 0.2% from its previous close. Market focus is now shifting to Wednesday's release of March inflation data. Analysts expect the rate to reach 3.1% year-on-year, up from 3.0% in February. Nedbank economists indicated that while food inflation is cooling, higher fuel prices remain a primary concern for the consumer price index. Chief Investec economist Annabel Bishop noted that the immediate impact of the March data on the currency might be limited.
A jump in South African inflation is only likely to show in April's CPI figures, with March's reading likely to have little impact on the rand.
In the bond market, the yield on the benchmark 2035 government bond rose 11.5 basis points to 8.31%. Investors are also awaiting the South African Reserve Bank's Monetary Policy Review on Tuesday, which is expected to provide further guidance on the country's interest rate path.
