JSE falls the most since November

The JSE fell the most since November on Tuesday as a possible escalation of tensions in the Middle East and delayed interest rate cuts in the US weighed on sentiment.

Israel has vowed to retaliate for Iran’s weekend missile strike, which caused investors to move into safehaven assets such as gold, the dollar and US treasury bonds.

At the weekend Iran attacked Israel with hundreds of missiles and drones after an assault on the Iranian consulate in Syria. The tensions have raised global concerns that the conflict in the Middle East could worsen and negatively affect the global economy, reports Bloomberg.

Meanwhile, hot retail sales in the US have provided the latest indication that consumption remains strong despite inflationary pressures, fuelling expectations that interest rates will stay higher for longer in 2024.

Stocks have been hitting turbulence since the start of April. Traders have dialled back expectations for the number of US Federal Reserve interest rate cuts in 2024, helping to push treasury yields to their highest levels in five months, reports Bloomberg.

According to data from CME Group, traders are forecasting just one or two rate cuts in 2024. That is down from expectations at the start of 2024 for six or more cuts.

“Safe-haven assets such as the dollar and gold are in demand as risk sentiment turns negative on the heightened Middle East tensions and on receding bets that the Fed will cut rates soon,” TreasuryOne currency strategist Andre Cilliers said.

“Israel has vowed to retaliate to Iran’s strikes, while US retail sales data continued to reflect a still robust US economy.”

The JSE all share lost 2.04% to 72,999 points, after an intraday low of 72,855, pushed lower by most major indices. The top 40 fell 2.12%.

At 6pm, the Dow Jones industrial average was 0.4% firmer, while markets were down more than 1% in Europe.

The rand remained under pressure on the day, trading above R19/$.

“The rand’s weakness aligns with the dollar’s broad strength, with the dollar index reaching its highest level since November 2023,” said RMB analysts.

“This reinforces the narrative of a resilient US economy, heightening concerns about persistent inflation.

“Consequently, market expectations for a near-term Fed interest rate pivot have diminished, with the potential for higher rates held for longer now a greater risk. This shift in sentiment further bolstered the dollar’s bullish momentum.”

At 6.17pm, the rand had weakened 0.17% to R19.0176/$, 0.18% to R20.2045/€ and 0.23% to R23.6379/£. The euro was little changed at $1.0623.