JSE and rand firm as rate hikes digested

The JSE tracked mostly firmer global markets on Thursday as investors digested the Federal Reserve’s interest rate hike the day before despite widespread concern about banking.

The Fed increased its benchmark rate by 25 basis points — the ninth hike since March 2022 — taking the upper band of the Federal Funds Rate to 5%.

Chair Jerome Powell said that while the Fed was open to more tightening, its federal open market committee (FOMC) also considered pausing interest rates. Strong labour market data a week earlier swayed the decision.

Markets took his comments as somewhat dovish, with the possibility that the Fed could pause its hikes soon amid the banking sector concerns.

As expected, the Bank of England also hiked interest rates by 25bps.

“The FOMC is unsure how much tighter financial conditions will be as a result of the current banking sector stress,” said Matete Thulare, head of forex execution at RMB. “Tighter conditions due to banks pulling back their appetite to lend would reduce the need for the Fed to continue hiking to tame inflation. Thus, further increases are no longer assured.”

Treasury ONE currency strategist Andre Cilliers said “markets are betting that the Fed terminal rate is close and that the Fed will have to cut before the end of the year as a recession looms. The next FOMC meeting is only in May, and we will have two rounds of economic data prints before then that could change the outlook significantly,” he added.

The JSE gained 0.45% to 75,585.23 points, bolstered by retailers (1.18%), food producers (1.06%), financials (0.98%), industrials (0.94%) and banks (0.91%). The top 40 added 0.44%, but industrial metals and resources lost 1.57% and 0.89%, respectively.

At 7.05pm, the Dow Jones industrial average was 0.9% firmer at 32,319.56 points, and the S&P 500 was 1.17% higher. In Europe, London’s FTSE 100 closed 0.89% lower, Germany’s Dax was little changed and France’s CAC 40 added 0.11%.

The rand extended the previous session’s gains, touching the strongest level in more than a week at R18/$.

Thulare said while the rand’s strength was tied to a weaker dollar, it was “mostly about reversing Tuesday’s underperformance”.

At 6.13pm, the rand had strengthened 1.13% to R18.0465/$, and had gained 0.71% to R19.6571/€ and 0.54% to R22.2420/£. The euro was 0.33% firmer at $1.0893.

Gold gained 0.96% to $1,988.29/oz and platinum 0.95% to $986.76/oz. Brent crude was 1.57% firmer at $76.88 a barrel.