People inspect damage following an overnight Israeli air strike on the neighbourhood of Kafaat in Beirut's southern suburbs, on October 7, 2024. Photo: AFP
Nicola Mawson
The rand and the JSE’s All Share index started the week on the back foot as tensions in the Middle East escalate and positive data out of the US prompted investors to become more cautious.
While the market closed in the red on Friday, with the All Share index down 0.1% to close at 86332.42 points, the index slightly recovered yesterday, down marginally at0.03% to close at 86 309points.
However, mining counters were weighing on the bourse, as the full effect of Chinese stimulation packages on commodities has yet to be fully understood.
The rand is pulling back and started the week at R17.49 to the dollar, after trading at R17.09 to the greenback as recently as Sunday. The currency was 0.34% higher at R17.41 at 4.32pm.
Nolan Wapenaar, the co-chief investment officer at Anchor, said that the slight pullback in the rand was “comfortable for most”. He observed that the combination of Middle East tensions and better-than-expected labour markets had given investors reason to pause.
“Still, we think that a strong US economy and inflation that is under control are good news. Therefore, the longer term outlook remains positive for most asset classes.”
Andre Cilliers, a currency strategist at TreasuryONE, noted yesterday that the currency had a “difficult” week last week against the dollar. Despite this set back, it remained resilient, “especially with domestic inflation trending lower and rate-cut expectations intact”.
The rand had weakened from close to R17.00 a dollar at the end of September, with that rate being a “major resistance level” that will be difficult for it to sustainably break through, said Annabel Bishop, Investec’s chief economist.
Bishop noted the decline was due to an escalation in the war in the Middle East and a cautious tone coming out of the US on future potential rate cuts. “Volatility is likely to persist for the domestic currency, as it remains influenced by US data releases and commentary from monetary policy officials.”
Oil, meanwhile, is becoming pricier, trimming the likelihood of a fuel price cut next month.
Brent crude oil, Bishop said, had risen from $71.70 a barrel to $79.60 as worries over the impact of the Middle East conflict on oil supply rose, reducing the chances of a substantial petrol price cut next month. “In particular, threats of bombing Iranian oil fields have raised concerns, with China a key importer of Iranian oil, and a large global oil importer, which would push up the oil price as demand would increase for remaining global supplies,” she explained.
Johann Els, Old Mutual chief economist, said the increase in the oil price was “probably some traders buying up oil in case of bigger escalation” in the war in the Middle East. While he is not too concerned, with a risk probability of below 50, a significant blow up in the Middle East could see oil prices rapidly rise towards $120.
Jimmy Moyaha, the founder and managing director of Lebowa Capital, said markets could be feeling uneasy due to prevailing geopolitical tensions. “The escalation of the conflicts in the Middle East is manifesting itself in the higher oil prices, despite weaker demand and expected supply cuts.”
Moyaha added that, while the local currency was holding steady against the euro and pound, it was “fighting a bit harder against the dollar”. He noted that as a soft landing for the US economy seemed increasingly likely, the dollar was expected to strengthen. A soft landing would be “a first in US history”.
China’s markets were closed yesterday for Golden Week and that could be part of the reason why local resource counters remain under pressure, Moyaha said. “The Chinese demand story is yet to fully play out since the announcement of their stimulus package.”
BUSINESS REPORT