US rate hike fears hit emerging markets

FEARS of a US interest rates hike this week had serious negative effects on emerging markets last week.

This sentiment, together with the announcement of the high level of oil reserves in the US, has led to oil and other commodity prices tumbling. As a result, local share prices, bond rates and the rand exchange rate moved weaker. Commodity stock, specifically, was sold off noticeably.

On Friday, the US job data provided the final nail in the coffin for low and unchanged interest rates in the US. That country’s unemployment came down to 4.7 percent, while the economy created 235 000 new jobs in February. Average hourly wage earnings had grown by 6c, or 0.2 percent, indicating that demand inflation is likely to increase sharply in months to come.

The all share index closed Friday on 51 29.54 points. This was 439 points, or 0.8 percent, lower than the previous Friday.

Over the week, financial shares lost 0.1 percent, while the industrial sector gained 0.8 percent during the week. The resource 20 index, after losing 2.8 percent since the previous corresponding day, tumbled even further by 5.4 percent during last week. The index is now 6 percent lower than at the beginning of the year. The property share index for the week had increased by 0.2 percent, while the R186 bond closed on 8.69 percent, or 4 points, stronger than the previous week.

The rand depreciated strongly since last Wednesday and reached the R13.30 to the dollar level on Thursday, much weaker than the R12.93 earlier in the week. The unit, however, recovered on Friday and traded at R13.15, (or 1.1 percent) weaker for the week just after the close of the JSE on Friday.

The rand was at R15.94 or 13c (0.3 percent) stronger against the pound than the previous Friday, but was weaker by 1.1 percent against the euro on R13.97.

Despite the weaker rand, the price for petrol is still more than 40c a litre over-recovered. The much lower international Brent oil price of less than $53 (R700) a barrel, more than $3 a barrel lower than the beginning of last week, caused much of the current over-recovering.

This lower oil price and stable rand/$ exchange rate may lead to lower oil prices at the beginning of April, despite an increase of 30c a litre in the fuel tax and 9c a litre for the Road Accident Fund on April 5.

Meanwhile, this week focus will be US Federal Reserve’s decision on interest rates on Wednesday.