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Johannesburg - The promising run on the JSE was dealt a blow on Thursday morning when the European Central Bank's hard line on Greek debt put a severe dent in international investors' risk appetite.
Emerging markets in Asia traded lower in response to a fall on Wall Street and the JSE moved modestly lower.
READ: Asia stocks, euro hit on firm stand on Greece
The upbeat mood in the markets earlier this week was based on hopes that Greece’s new government could reach a deal on modifying Greece's bailout and avoid a new eurozone crisis. However, the ECB said in a statement late on Wednesday that it would no longer allow Greek banks to use government debt as collateral for loans, depriving the banks of a key source of cash.
The JSE recovered some of the earlier losses on Thursday by midday and the All-share index was at that stage only 0.13% weaker at 51 562, while the Top 40-index lost 0.06%.
Under the terms of Greece's bailout, its banks had been given a waiver to use government bonds - which have a junk rating - as collateral as long as the Greece government stuck to its obligations. The ECB said it took the step because it was no longer confident that Athens could show it was meeting bailout programme requirements.
It means Greek banks cannot pledge their government bonds as liquidity collateral from February 11, leaving them dangerously short of access to funding. Greek bond rates shot up to more than 10%.
Investors also became more cautious as an extended rally in crude oil petered out on news that US oil inventories are at record levels. Brent traded at $53.70 on Thursday morning after oil prices plunged 9% on Wednesday.
READ: Oil prices rebound in Asia, but gains capped
Resources was the biggest loser on the JSE, dropping 1.18% by midday after being more than 2% down earlier in the day. The shares were also affected by indications that China’s growth rate is dropping faster than originally thought, which would keep commodity prices low for longer. The Chinese manufacturing sector is one the biggest buyers of South African commodities.
China’s central bank announced measures late on Wednesday to stimulate the economy by cutting the bank’s reserve requirements, which would make credit more readily available.
"Although the move by PBOC does ease credit and may be beneficial to stimulating demand, it is also a clear sign that growth in China is declining at a faster rate than previously thought and as such could have a dampening effect on demand throughout the Asia region," Boris Schlossberg, managing director at BK Asset Management, wrote in a note to clients.
Sasol [JSE:SOL] gave up a lot of its recent gains on the weaker oil price when the share dropped 5.87% to R441.49, to make it one of the biggest losers of the morning. BHP Billiton [JSE:BIL], with extended oil and gas production assets, traded 2.23% lower at R259.10.
The big drop in Sasol’s share price was the main reason for the drop in the commodity index, as Anglo American [JSE:AGL] was only 0.24% lower by midday at R197.50. Glencore [JSE:GLN] dropped 0.44% to R45.30.
Gold shares benefited as usual from uncertainty and the Gold index was 0.99% higher at midday. Sibanye Gold [JSE:SGL] was at one stage at a new intraday high of R32.48 but traded only 2.03% higher by midday at R32.23, just below the previous high of R32.26.
Naspers [JSE:NPN] did not respond much to the news that Tencent Holdings, China’s second-biggest internet company in which it holds a 34% interest, managed to sell bonds to the value of $2bn in the international market. By midday Naspers was 0.23% lower at R1 674.41.
The sell-off in retail shares, which have been trading at record levels, continued this morning. On Thursday Italtile [JSE:ITE], which reached a new 52-week high of R13.25 on Monday, lost another 5.06% to R11.80. The share has now lost more than 10% since Monday.
Emerging markets in Asia traded lower in response to a fall on Wall Street and the JSE moved modestly lower.
READ: Asia stocks, euro hit on firm stand on Greece
The upbeat mood in the markets earlier this week was based on hopes that Greece’s new government could reach a deal on modifying Greece's bailout and avoid a new eurozone crisis. However, the ECB said in a statement late on Wednesday that it would no longer allow Greek banks to use government debt as collateral for loans, depriving the banks of a key source of cash.
The JSE recovered some of the earlier losses on Thursday by midday and the All-share index was at that stage only 0.13% weaker at 51 562, while the Top 40-index lost 0.06%.
Under the terms of Greece's bailout, its banks had been given a waiver to use government bonds - which have a junk rating - as collateral as long as the Greece government stuck to its obligations. The ECB said it took the step because it was no longer confident that Athens could show it was meeting bailout programme requirements.
It means Greek banks cannot pledge their government bonds as liquidity collateral from February 11, leaving them dangerously short of access to funding. Greek bond rates shot up to more than 10%.
Investors also became more cautious as an extended rally in crude oil petered out on news that US oil inventories are at record levels. Brent traded at $53.70 on Thursday morning after oil prices plunged 9% on Wednesday.
READ: Oil prices rebound in Asia, but gains capped
Resources was the biggest loser on the JSE, dropping 1.18% by midday after being more than 2% down earlier in the day. The shares were also affected by indications that China’s growth rate is dropping faster than originally thought, which would keep commodity prices low for longer. The Chinese manufacturing sector is one the biggest buyers of South African commodities.
China’s central bank announced measures late on Wednesday to stimulate the economy by cutting the bank’s reserve requirements, which would make credit more readily available.
"Although the move by PBOC does ease credit and may be beneficial to stimulating demand, it is also a clear sign that growth in China is declining at a faster rate than previously thought and as such could have a dampening effect on demand throughout the Asia region," Boris Schlossberg, managing director at BK Asset Management, wrote in a note to clients.
Sasol [JSE:SOL] gave up a lot of its recent gains on the weaker oil price when the share dropped 5.87% to R441.49, to make it one of the biggest losers of the morning. BHP Billiton [JSE:BIL], with extended oil and gas production assets, traded 2.23% lower at R259.10.
The big drop in Sasol’s share price was the main reason for the drop in the commodity index, as Anglo American [JSE:AGL] was only 0.24% lower by midday at R197.50. Glencore [JSE:GLN] dropped 0.44% to R45.30.
Gold shares benefited as usual from uncertainty and the Gold index was 0.99% higher at midday. Sibanye Gold [JSE:SGL] was at one stage at a new intraday high of R32.48 but traded only 2.03% higher by midday at R32.23, just below the previous high of R32.26.
Naspers [JSE:NPN] did not respond much to the news that Tencent Holdings, China’s second-biggest internet company in which it holds a 34% interest, managed to sell bonds to the value of $2bn in the international market. By midday Naspers was 0.23% lower at R1 674.41.
The sell-off in retail shares, which have been trading at record levels, continued this morning. On Thursday Italtile [JSE:ITE], which reached a new 52-week high of R13.25 on Monday, lost another 5.06% to R11.80. The share has now lost more than 10% since Monday.
