Market Commentary

Commodities, especially oil, silver, cocoa and soybeans recorded another strong week of gains sustaining a broad rally that has made the sector one of the top performers of this month. For instance, the U.S. oil benchmark showed weekly rise of more than 9% while Brent crude increased nearly 5.5%. This comes despite the failure last weekend of major oil exporters to agree to a deal to freeze production as accelerating US output declines and strong global demand for gasoline outweighed the disagreement. Of course, supply-demand fundamentals are specific to each commodity. However, persistent US dollar weakness and ongoing sentiment improvement prove to be supportive.

News that Chinese economy grew at its slowest rate in seven years (6.7% at annual pace) put a damper on a few African indices Friday erasing the excitement triggered by upbeat Chinese data suggesting a rebound in activities perceived as an early sign of economic recovery. The biggest losses were witnessed on shares depending on China as a market for their commodities. Adding to the uncertainty climate, the Doha meeting took place over the weekend. World major oil producers met in Qatar Saturday to discuss an output freeze to boost prices. Hopes are big for the investors as a failure to reach a deal could lead to a collapse in oil prices, a sharp sell-off in the markets and maybe risk aversion returns on the market, which is not supportive for African markets sentiment.

Oil surged above $40 a barrel as US output continue to fall and as we approach the meeting where suppliers will negotiate freezing output in an attempt to stabilise prices. Among major global currencies, the Rand soared the most, helping to limit a weekly slide in emerging-market currencies. Oil price increase supported demand for riskier assets as investors’ concerns over a slower growth was reinforced by IMF’s likely reducing outlook for world growth following the WTO’s decrease in trade growth forecast citing slowing China.

It’s all about Janet Yellen… Fed Chair addressed the Economic Club of New York this week outlining a cautious approach in raising interest rates. Yellen showed a hopeful view of US economy but flagged concerns about tighter financial conditions, slower global growth and China FX policy uncertainty as being able to potentially have a negative feedback loop into the US economy.