US rate hike talk dom­i­nates mar­kets

The Star Early Edition - - PRICES - Dr Chris Harmse Chief econ­o­mist Re­bal­ance Fund Man­agers

THE RE­LEASE of the US Fed­eral Open Mar­ket Com­mis­sion min­utes of its pre­vi­ous sit­ting, pos­i­tive US jobs data and higher US in­fla­tion rate ex­pec­ta­tions con­trib­uted to sharp de­creases in emerg­ing mar­ket share prices and de­pre­ci­a­tion in their cur­ren­cies, es­pe­cially last Thurs­day and Fri­day.

These move­ments in the US in­di­cate that a hike in the coun­try’s in­ter­est rates is im­mi­nent.

Lo­cally, the call by the ANC to­wards na­tion­al­i­sa­tion of the Re­serve Bank as well as the bailout of South African Air­ways with R2 bil­lion, also have led to a large de­pre­ci­a­tion of the rand.

Fears of se­vere ef­fects on the gold price given the hawk­ish stance of the Fed on in­ter­est rates, con­trib­uted to­wards a sharp de­crease in the prices of gold and oil over the week. The gold price de­creased by $14 (about R188) an ounce on Fri­day alone, while Brent oil lost more than $2 a bar­rel over the week, trad­ing on $46.72 on Fri­day af­ter­noon.

The rand ex­change rate de­pre­ci­ated against most ma­jor cur­ren­cies last week. On Fri­day af­ter­noon, the rand traded at R13.45 against the dol­lar, 40c (3.1 per­cent) weaker than the pre­vi­ous Fri­day. Against the pound, the cur­rency lost 31c over the week and de­pre­ci­ated by 2.7 per­cent, trad­ing at R17.29 at the close of the JSE on Fri­day. Against the euro, the rand has 40c weaker over the week to trade at R15.30 on Fri­day evening.

Just like the pre­vi­ous week, the all share in­dex on the JSE gained some­what over the week, but recorded big losses dur­ing the last two days of trad­ing. Ini­tially, the all share in­dex in­creased 843 points, or by 1.7 per­cent up to last Wed­nes­day (52 484 points) only to lose again 584 points (1.1 per­cent) to close Fri­day on 51 900 points. This still rep­re­sented an in­crease of 0.6 per­cent for the week but con­tin­ues to re­flect ner­vous­ness and vo­latil­ity in share prices.

Over the week, the in­dus­trial in­dex lost 0.4 per­cent and is 1.1 per­cent lower than the be­gin­ning of the year. Fi­nan­cials, how­ever, man­aged to in­crease by al­most 0.6 per­cent over the week, de­spite the weaker rand.

The re­sources 20 in­dex was the win­ner of the week, up more than 3.6 per­cent, but also ex­pe­ri­enced a large draw­back on Fri­day, los­ing al­most 1 per­cent.

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