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Johannesburg - The decision by the US Federal Reserve to keep interest rates unchanged did not provide the impetus to the JSE on Friday that was expected in some circles.
The reason is that the JSE is overbought in the very short term after the rally earlier the week sparked by SABMiller's [JSE:SAB] sharp jump, which created vulnerability to selling pressure and some profit-taking.
Imara SP Reid said in its daily Market Snapshot on Friday that the Top 40 index has seen a trading bounce of around 3 000 points over the past few sessions. Advances at such a high rate of change are seldom unchallenged by further selling pressure, as slightly more conservative market participants use the available strength as an opportunity to lighten exposure.
The question now is if the upward momentum, which caused some of the major indices to break back beyond their 200-day moving averages, can be maintained after the initial profit-taking.
By midday on Friday the All-share index was 0.78% lower at 51 171 points, while the Top 40 index traded 0.88% softer at 45 731 points.
The decision by the Fed to keep interest rates unchanged sparked new economic concerns. The Fed cites worries about the global economy, financial market volatility and sluggish inflation at home as the reasons for keeping interest rates unchanged.
Although it left open the possibility of a modest policy tightening later this year, many analysts think it is unlikely to happen.
The Fed’s decision was devastating news for the dollar, and the rand traded strongly at R13.24 to the dollar by midday on Friday.
A weaker dollar should be good news for commodities and commodity prices, and the gold price responded on Friday by gaining 0.51% to $1 136 per ounce. The Gold index gained 5.2%, with gold shares among the biggest movers of the day.
The Resources index was however only 0.31% stronger as gains were capped by the stronger rand, but the Industrial index lost 1.08% and the Financial index 0.93%.
European stocks softened on Friday morning in reaction to the Fed’s decision, but in Asia the markets in China, Hong Kong and Australia were moderately higher. Unchanged interest rates could mean investors are less likely to withdraw their money from emerging markets to seek less risky returns in the developed world.
Among the gold shares Harmony [JSE:HAR] traded 8.75% higher at R12.30, while DRDGOLD [JSE:DRD] traded 6.95% stronger at R2.00. AngloGold Ashanti was 4.09% higher at R111.79. The volatility of the Gold index meant AngloGold gained 45% over the past 30 days, but is still 19.2% lower over 90 days and 25.8% over the last year.
The market responded positively to the news that Impala Platinum [JSE:IMP], the world’s second-largest producer of the metal, plans to cut as many as 1 600 jobs at its Rustenburg operations in South Africa as the prices have fallen to six-year lows.
READ: Impala Platinum plans to cut 1 600 SA mine jobs
The share price gained 1.31% to R47.05 after it became known that workers at the Rustenburg Lease mine were handed notices about the personnel cuts on Wednesday. The low platinum price had a devastating effect on Impala’s share price and the stock is 30.6% lower over the past 30 days and 48.2% over the past year.
SABMiller, which gained more than 18% over the past few days on the news that it was approached by Anheuser-Busch InBev about a possible tie-up, succumbed to very moderate profit taking on Friday. The share price was 0.65 lower at R749.18.
The fact that the British Takeover Panel forced SABMiller to release a statement about the approach by Anheuser-Busch InBev means that company now has 28 days to deliver a formal, fully financed bid.
