Investec chief economist, Annabel Bishop, said the recent US interest rate cut was the main driver of rand strength. Picture: Henk Kruger Independent Newspapers
Nicola Mawson
The rand and the JSE’s all share index were on a hot streak yesterday, continuing to break records on the back of the new administration, falling inflation, lower interest rates, and wiping out the losses the market saw during the global Covid-19 pandemic.
The all share index is up around 50% over the past five years, but was 0.8% weaker to 86 921 index points by 4pm yesterday.
Meanwhile, the local currency also strengthened to R17.05 against the greenback early yesterday morning, before shedding gains to R17.22/$1 by 4pm.
Unlike some recent rallies, the JSE’s gains were not being exclusively driven stronger by miners, which were on the back foot during morning trade, but rather an assortment of shares, which varied throughout the day.
Seleho Tsatsi, investment analyst at Anchor Capital, explained that miners were very cyclical, going through periods of strong outperformance of the rest of the market and periods of strong underperformance of the rest of the market.
“Over the past five years, we’ve seen that type of cyclicality from the sector. Over the Covid period, many commodity prices hit all-time highs. Iron ore, thermal coal, palladium, and rhodium for example all hit all-time highs over this period,” Tsatsi told Business Report yesterday.
“This was then followed by a cooling in prices for a variety of reasons, which led to margins and earnings coming under pressure and share prices following suit.
“Recently, with the announcement of the substantial stimulus out of China, mining stocks have started to perform well again. But it’s a sector where things can change very quickly depending on macroeconomic factors such as Chinese GDP growth, fixed asset investment, and others.”
China last week announced several measures in a bid to bolster that country’s economy, where economic growth has stagnated.
Andre Cilliers, currency strategist at TreasuryONE, noted that gold was trading unchanged at $2 659 yesterday, while platinum and palladium were both marginally softer during the morning. Brent Crude was somewhat currently firmer at $72.92 as Israeli attacks on Hezbollah targets in Lebanon continued.
Investec chief economist, Annabel Bishop, said yesterday that Chinese stimulus has helped alleviate some worries over the weakness of global activity, with commodity prices seeing some benefit too, along with emerging market currencies.
However, Bishop said the recent US interest rate cut was the main driver of rand strength.
“The rand has strengthened quickly over the past couple of weeks, running rapidly stronger on the surprise 50 basis point interest rate cut, but already having appreciated, albeit more slowly, since the national election in South Africa at the end of May,” she said.
Bishop noted that R17.00 to the dollar was a major resistance level and will likely require further momentum to convincingly pierce that level, driven either by positive data outcomes, further US interest rate cut surprises, or both.
Old Mutual Group chief economist, Johann Els, however, said he saw the rand breaking into R16-mark to the dollar territory sometime this week.
“The recent gains are a continuation of what we’ve seen recently: positive sentiment in the markets from consumers, from businesses, from investors,“ Els said.
“The deep concerns we’ve had about politics and politicians’ ability to make the right policies over the last 12 years have started easing quite substantially post the Government of National Unity.”
Els told Business Report that the expectation of additional rate cuts in the US was driving risk-on trade, benefiting the rand. Moreover, he said, with fuel prices set to come down tomorrow, inflation this month could come in at around 3%.
The gains in the all share index, Els said, have “wiped out Covid losses”.
“I think there’s quite a number of drivers. So that will likely continue this week and over the next several weeks and months.”
BUSINESS REPORT