JSE weakens, with focus on US inflation

The JSE fell further on Wednesday, tracking weaker US markets as investors digested that country’s revised GDP numbers but remained cautious before the release on Thursday of the key inflation report.

The revised fourth-quarter GDP report showed the economy grew at a slightly slower pace in the final months of 2023. GDP growth was revised to 3.2%, while the market had expected it to remain unchanged from the first reading of 3.3%.

Markets are, however, focused on the personal consumption expenditure (PCE) price index report for January, due to be released on Thursday. Investors hope for more clues on the health of the world’s biggest economy and insight into the path of the Federal Reserve’s monetary policy.

Core PCE, the Fed’s preferred inflation gauge, is expected to rise 2.8% year on year. The report could indicate where the Fed will take interest rates in 2024, reports Bloomberg.

According to the CME’s FedWatch tool, markets are pricing in a first Fed cut at the June meeting, though that has been a moving target.

“The second reading of the US GDP does not hold much weight on the current trajectory. Markets remain on edge ahead of Thursday’s core PCE data,” said TreasuryOne currency strategist Andre Cilliers. “The data will be assessed for any surprises that could change current rate cut expectations for the Fed.”

The JSE’s all share index fell 1.28% to 72,204 points. Major indices were weaker, with the top 40 down 1.44%.

At 6.10pm, the Dow Jones industrial average was 0.18% weaker at 38,903 points, while markets were mixed in Europe.

Cashbuild led losses on the JSE after the building materials retailer reported that its profits fell 20% in the six months to end-December, despite a low base created in the previous matching period. The slump in profits suggests the DIY market has yet to bottom out after the Covid-induced boom and bust. Cashbuild’s share price fell 8.31% to R131.58.

The rand weakened more than 1% on the day, touching an intraday worst of R19.2924/$ “as market expectations of the start of the US interest rate cut cycle keep being pushed back”, said Investec chief economist Annabel Bishop.

“The slow descent of core inflation measures in the US and ongoing strength of the US economy saw the [federal open market committee’s] communications continue to show caution on interest rate cuts.

“The signalled delays have weakened the rand and emerging-market currencies,” said Bishop.

At 6.05pm, the rand had weakened 0.84% to R19.2361/$, 0.76% to R20.8449/€ and 0.64% to R24.345/£. The euro was little changed at $1.0836.