JSE plummets as Warsh’s Fed appointment sparks global market rout

Stocks on the JSE suffered their steepest decline in nearly a month on Monday, while the rand lost ground as global markets were roiled by US President Donald Trump’s announcement that Kevin Warsh will succeed Jerome Powell as chair of the US Federal Reserve in mid-May.

Markets had largely expected a more dovish candidate to lead the Fed and pursue looser monetary policy. Instead, the appointment of Warsh, a vocal critic of the central bank, triggered a sharp repricing of risk assets globally.

Warsh has previously argued that the Fed’s “outsized role and underperformance have weakened the important and worthy case for monetary policy independence”.

The JSE All Share Index plunged more than 5% at the opening bell before recovering some ground to trade about 3% lower by mid-morning, erasing recent gains and dragging the index down to around 116 105 points. However, the index gained some ground and was 118 903 points by 5pm. 

Losses were led by the resource sector, with mining and precious metals stocks sliding sharply. Sibanye Stillwater was the biggest casualty in early trade, falling more than 14%, while Northam shed about 12% and Harmony dropped around 11%.

Other major gold counters, including AngloGold Ashanti and Gold Fields, were also under heavy pressure.

Gary Booysen, portfolio manager at Rand Swiss, said the local market had been hit by a renewed wave of volatility following Warsh’s appointment.

"While he has recently been advocating for lower interest rates, he is generally considered more hawkish," Booysen said.

"This has seen a major shift in expectations around the future path of monetary policy in the US and has helped to firm up the dollar." 

Booysen said the stronger dollar weighed heavily on commodities. He noted that spot gold fell more than 5% to around $4 600 an ounce, while silver suffered even steeper losses, plunging more than 30% at one point on Friday.

Booysen noted that the sell-off was exacerbated by the CME raising margin requirements on several precious metal contracts, adding further pressure to already falling prices.

"If we look at the mining complex on the JSE this morning, the likes of Sibanye down more than 20% at one point," he said.

"There has been some recovery off the initial lows, but investors and traders are certainly trying to reprice these businesses given the lower spot metal prices." 

Meanwhile, the rand also reversed recent gains, weakening more than 1% to about R16.30 to the dollar on Monday morning, after trading as strong as R15.64 last week. The local currency had started the year at around R16.51 to the dollar before briefly weakening to R16.59.

In recent days, the US dollar has strengthened by about 1%, while the rand has depreciated by nearly 3%, reflecting reduced appetite for risk as uncertainty around US monetary policy increased.

Investec chief economist Annabel Bishop said Warsh is expected to push for a shrinking of the Fed’s balance sheet and has warned against what he terms “monetary dominance”, where central banks exert excessive influence over fiscal policy.

Bishop said the sharp drop in gold prices has added to pressure on the rand, with bullion falling to about $4 575 an ounce from levels above $5 500 reached last week.

“The drop in the gold price is encouraging some buyers, seeking to get in in the dips, although the market correction represents more than a dip. Market uncertainty will likely drive volatility this week, with the rand back at R16.00/USD this afternoon,” Bishops said.

“US President Trump's announcement that Kevin Warsh would succeed Jerome Powell at the Fed triggered the market rout, and base metals and agricultural prices slumped as well, also key exports for SA along with gold, also dimming the rand.”

BUSINESS REPORT