US rate hike talk dominates markets

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.