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Global bond sell-off hurts JSE

Johannesburg - The mood in financial markets has deteriorated dramatically over the past few days and the JSE followed world markets sharply lower on Thursday.

A sharp sell-off in government bond worldwide sent shock waves through equity markets, with long term bond yields rising substantially. That means that long-term funding will cost more in future.  The yields in the bond market are often a forerunner of what will happen to short-term rates.

The implications for South Africa is that higher bond yields in the developed world can lead to a reversal in the capital flow from emerging markets where yields are currently higher, back to the developed markets.

The All Share-index on the JSE, which experienced the biggest drop in six weeks on Wednesday, was by midday on Thursday another 1.31% lower on 53 145 points. The index is now more than 4% lower than the all-time high of 55 188, which was reached on 25 April this year.

The Top 40-index, which dropped to below 48 000 on Wednesday, was approaching 47 000 on Thursday and traded 1.21% lower on 47 131 points.

Important resistance level is looming

Technical analysts of Imara SP Reid said in their daily market snap shot this morning that an important resistance level is looming at 46 780. All the major indices were sharply lower this morning with the gold index losing more than 5% after Gold Fields [JSE:GFI] shed almost 10% of its value.

The sell-off in government bonds was mainly due to the recovery in the oil price, which is now 50% higher than its lows earlier this year. This increase put an end to deflation fears in Europe in particular.

Investors are also increasingly worried about the situation in Greece, because the Greek government seems unable to negotiate a solution to its debt problem, with a big payment to the IMF looming next week.

Oil sector downturn continues to pinch labour market

Terrible news about the US economy is also continuing with a private survey by the Payroll firm ADP indicating that the world's top economy added just 169 000 private-sector jobs in April, the second month in a row under 200 000, as the oil sector downturn continued to pinch the labour market.

A report on productivity also indicated that unit labour costs increased, which is bad news for inflation and continued low interest rates.

Janet Yellen, chairperson of the Federal Reserve, added to the nervousness with her warning at an investment conference in Washington, that "equity market valuations at this point generally are quite high".

"There are potential dangers there," she added.

This led to nervousness on Wall Street with the benchmark Standard & Poor-index dropping to below its 65 day moving average.

Gold index the biggest loser

The biggest loser was the Gold index, which lost 5.58% by midday on Thursday after the gold price dropped even further to $1 183 per ounce. The index was pulled lower by Gold Fields, which lost more than 8% in the first hour of trading after disappointing first quarter results

The mining group posted a massive year-on-year (y/y) increase in losses attributable to shareholders, from $300 000 in Q1 2014 to $13.9m for the first quarter ended March 31 2015. That means that the company’s earnings deteriorated by 418% y/y.

At one stage, the share price was almost 10% lower, but recovered somewhat and was at midday 8.75% weaker on R46.50.

Anglogold Ashanti [JSE:ANG] also lost 5.90% to trade at R127.51, but the share is still 41.5% higher for the past three months.

Run in resources sector over

The run in the resources sector also seems to be over and the Resources 10-index was by midday 1.94% weaker, with Anglo American [JSE:AGL] 2.36% softer on R205.78 and its subsidiary Kumba [JSE:KIO] losing 6.09% to R174.45.

BHP Billiton [JSE:BIL] only lost 1.14% to R288.03 after shareholders overwhelmingly voted in favour of proposals to list its aluminium, manganese and nickel interests in a separate company South32.
 
The sell-off in financial shares continued and Imara SP Reid said it was to be expected as the banking sector was heavily overbought. The Financial 15-index is now about 5% lower than its recent all-time high.

FirstRand [JSE:FSR] lost 1.28% to R54.02 and Standard Bank [JSE:SBK] was 1.74% lower on R169.39. Sanlam [JSE:SLM] lost 2.76% to R72.30.

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Rand - Dollar
18.87
+0.3%
Rand - Pound
23.85
+0.2%
Rand - Euro
20.38
+0.3%
Rand - Aus dollar
12.32
+0.2%
Rand - Yen
0.12
+0.3%
Platinum
908.05
0.0%
Palladium
1,014.94
0.0%
Gold
2,232.75
-0.0%
Silver
24.95
-0.1%
Brent Crude
87.00
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Top 40
68,346
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All Share
74,536
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Resource 10
57,251
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Industrial 25
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Financial 15
16,502
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