Rand and stocks hit by global headwinds

THE rand weakened against the dollar yesterday by the most in nine weeks to lead losses among currencies as evidence of subdued global economic growth prompted declines in commodities.

The domestic currency sank as much as 2.5% and was the worst performer among 31 emerging market and developed nation currencies that Bloomberg tracks.

Prices of commodities declined for a second day, as did the MSCI Emerging Markets Currency index. Stocks on the JSE dropped to the lowest in three weeks after a gauge of Chinese manufacturing fell last month. China is the biggest consumer of South African raw materials, which account for about half of the nation’s exports.

“Everything is a bit down today — the rand is caught up in the tailwinds of that,” said Andre Botha, a dealer at TreasuryOne.

The rand was also dragged lower, as the Australian dollar tumbled after the central bank cut interest rates unexpectedly to a record, as it seeks to help spur a revival in industries outside mining.

After gaining 1.2% to rack up a third week of gains last week, the rand retreated 2.3% to R14.6070/$ in early evening trade, weakening beyond its 200-day moving average for the first time since April 18. A breach of that level is seen by some analysts as a bearish signal.

“The rand tends to be more excessive in its weakening and strengthening,” said Ion de Vleeschauwer, chief dealer at Bidvest Bank in Johannesburg. “People use the rand as a proxy for other emergingmarket bets. That’s just the nature of the currency.”

Stocks on the JSE all share index fell 2%, while yields on benchmark government bonds climbed 15 basis points, to 9.13%. Yields are now at their highest in three weeks.

The rand gained for a third month in April, supported by a surge

in inflows into the bond market.

Figures from the JSE yesterday suggest that trend may be reversing, with offshore investors selling R1bn of local debt after buying R8.3bn the week before.

US stocks retreated soon after the opening, with the S&P 500 headed towards a three-week low, amid rekindled angst over the sluggish pace of global growth and an uninspiring flow of corporate earnings.

Weaker-than-forecast factory data in the UK and China reminded investors of the malaise worldwide that had a hand in sending equities to their worst start to a year. At the same time, US earnings remained mixed. The drop in oil prices pushed down the S&P 500 energy index more than 2.3%, making it the leading decliner among the 10 major S&P sectors.

Financial shares were also a top decliner, with the S&P financial index down more than 2%.

Earlier, European shares fell to a three-week low, with Commerzbank leading the decline after a slump in profits and mining stocks falling along with metals prices.

Germany’s Commerzbank fell 9.6% after posting a 52% drop in firstquarter net profit, hit by volatile capital markets and low interest rates.

“The numbers for the first quarter did not come in well,” said Landes- bank Baden-Wuerttemberg analyst Ingo Frommen in a note.

“However, external factors that have also hit other banks hard appear to be the main reason for that.”

Traders said media reports about Commerzbank’s role in a tax-evasion scheme also weighed on the stock.

Commerzbank said its internal systems made sure that all trades were consistent with German law. Europe’s biggest bank, HSBC, which initially gained after it reported a smaller-than-expected drop in profit, gave up its gains and ended the day down 1.6%.

The STOXX Europe banking index fell 3.7% and the basic resources index lost 6.4%. Prices of major industrial metals fell after a survey showed Chinese manufacturing activity shrank for a 14th straight month in April.

“I would be cautious on the mining sector because if global growth disappoints again, then commodities could also certainly be prone to disappointments,” Gerhard Schwarz, head of equity strategy at Baader Bank, said.

“The dollar is going softer and there are some concerns that the currency is no longer a tailwind for some companies.

“The results season is not bad overall so far, but I would doubt that the earnings outlook will improve that significantly as expected. The impact from pricing power is still rather weak,” he said.

German chip maker Infineon fell 4.7% after lowering its revenue and profit margin guidance for the full year, saying it expected to benefit less from exchange rates.

The pan-European FTSEurofirst 300 index fell 1.7% at 1,318.9 points, its lowest closing since April 12.

HSBC, which earlier rose after reporting a smaller-than-expected drop in profit, gave up its gains and ended down