US RATE CUT LIFTS THE RAND

THE RAND firmed yesterday, finding relief in a surprise rate cut by the US central bank after a sharp selloff triggered by data showing the economy is in recession.

At 5pm, the rand bid at R15.3478 to the dollar, 10 cents firmer than at the same time on Tuesday, backing down from a five-session best of R15.21 on Tuesday touched after the US Federal Reserve (Fed) delivered an emergency 50 basis point lending rate cut just as local markets closed.

Before that, the stats agency reported SA’s economy had entered its second recession in two years in the final quarter of last year, shrinking by a forecast-smashing 1.4 percent as a swathe of industries were hit by months of regular power outages.

The data stoked already bearish sentiment around the currency following last week’s budget in which the treasury chopped its 2020 growth forecast to 0.9 percent and announced estimates of a higher budget deficit – making a credit downgrade by Moody’s at the end of the month a near certainty.

“It is impossible to know what is going to happen with the world’s central banks in full panic mode,” said Standard Bank chief trader, Warrick Butler.

While the Fed move set off some big inflows into emerging markets as the greenback hovered near fivemonth lows, early morning moves in risk assets were more muted as investors tried to digest the ongoing impact of the coronavirus.

“The action taken by central banks shows their hand, and they are worried. We should be too, then. It’s expensive but I feel you have to remain defensive as far as owning risky assets is concerned,” Butler added in a note.

Bonds, which have also traded in a volatile range, were on the front foot, with the yield on the 10-year 2030 government issue down 9 basis points at 8.875 percent.

Stocks fell slightly, with the JSE blue-chip Top40 index slipping 0.23 percent to 47 560.68 points and the broader all-share index closing 0.06 percent lower at 52 926.75 points. I Reuters