JSE, rand slide on weak commodities

SOUTH African markets ended a shortened week on a sharply weaker note as investors cashed in on recent gains, particularly in equities.

The JSE All Share index tumbled nearly 3% to 52 323.800 points, almost reversing a 4% gain the previous week.

Mining stocks took a heavy knock in a broad sell-off that included financial and industrial counters.

The resources index shaved off 5% amid a sizeable drop in metal prices, including gold. The pressure stemmed from a revival in the dollar, which tends to move inversely to metal prices.

Several US Federal Reserve officials hinted this week that more interest rate hikes could be on the cards this year. It is a prospect that caught the markets by surprise, but one that strengthened the dollar.

“Risk assets have assimilated the improved liquidity conditions engineered by central banks around the globe and, in large measure, this adjusted policy stance has to a degree been factored into prices,” Momentum SP Reid Securities said in a note.

Global stocks have risen in recent weeks after major central banks, including the European Central Bank, adopted additional stimulus measures to jump-start their economies.

The rand continued to trade in a wide band against most of its trading partners. The dom- estic currency was back at R15.55/$ on Thursday, having strengthened to 15.14/$ earlier in the week.

The rand fell victim to a strong dollar and weak commodity prices. Its slide bode ill for the consumer price index, which quickened to 7% year on year in February from 6.2% in January.

Capital Economics analysts said higher inflation were likely to lead the Reserve Bank to aggressively hike interest rates. “This will be very painful for an economy that is struggling to avoid recession.”

The Reserve Bank has already raised rates by a cumulative 75 basis points this year to tame inflation, now firmly outside its 3% to 6% target range.