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Johannesburg - Share prices on the JSE started higher on Friday, but then lost ground for most of the morning as the excitement around the massive capital injection into the eurozone economy wore off.
By midday most of the major indices were barely in the black as Thursday's strong run in the resources sector was sharply reversed.
Resources shares strengthened sharply on Thursday on expectations that a capital injection of $5.5trn in the eurozone will stimulate the region’s economy enough to increase commodities demand. This optimism was dampened on Friday by news that the economy in China - also an important market for commodities - is not doing so well.
Shortly before midday on Friday the All-share index, which traded for most of the day above 50 000, was only 0.05% higher than Thursday’s close at 49 896. The Top 40-index, which was above 44 000 on Thursday, was also 0.05% stronger at 43 746, within reach of that important resistance level of 43 600 which must be breached decisively for any run to be sustainable.
At that stage the Financial index was still firmly in the black and 0.84% higher, but the Industrial index was only 0.31% higher.
The Resources index lost 1.43% at that stage and the Gold index was 2.82% lower after the gold price dropped marginally.
It was announced on Friday morning that manufacturing activity in China last month contracted for the second consecutive month, according to preliminary survey findings.
The HSBC/Markit Flash Manufacturing Purchasing Managers' Index (PMI) hovered at 49.8 in January, little changed from December's 49.6 and just below the 50-point mark that separates growth from contraction on a monthly basis.
A Reuters poll had forecast a second month of contraction with a reading of 49.6.
The flash index is based on between 80% and 90% of the results of the survey, and released around a week in advance of the final figures, which can vary.
READ: China factory growth stalls
According to the survey results Chinese companies had to cut prices at a faster pace to win new business, adding to worries about growing deflationary pressures in the economy.
A Reuters poll had forecast a second month of contraction with a reading of 49.6.
South African resources stocks were also hit by a stronger rand, which traded within easy sight of the previous day's 7-week highs against the dollar on Friday.
READ: Rand hovers near 7-week high on ECB move
The capital injection in Europe could lead to some of that money being invested in South African bonds and shares, which is good for the currency. Government bonds strengthened and yields on the 2026 benchmark bond dropped to 7.255%, the lowest since late in May 2013 according to Reuters data.
A strong rand is however bad news for South African resources companies, which are paid in dollars for their exports.
Anglo American [JSE:AGL], which was comfortably above R200 on Thursday, dropped by 1.74% to R195.04.
BHP Billiton [JSE:BIL] dropped 1.4% to R247.96 despite a production report on Thursday indicating strong growth in production of iron ore, oil, petroleum and coal. This was not well received in the commodity markets, as any increase in production in an oversupplied market will depress prices further.
Anglo American Platinum [JSE:AMS] was one of the biggest losers on Friday morning after the company said on Friday that it expected its year headline earnings to fall between 40% and 55%, because of a five-month strike which hit its key South African operations last year.
READ: Strike to cause steep earnings drop - Amplats
The share price of the world's largest platinum producer dropped 3.42% after it said in a statement that it expected headline earnings per share to be between 250 cents and 335 cents.
By midday most of the major indices were barely in the black as Thursday's strong run in the resources sector was sharply reversed.
Resources shares strengthened sharply on Thursday on expectations that a capital injection of $5.5trn in the eurozone will stimulate the region’s economy enough to increase commodities demand. This optimism was dampened on Friday by news that the economy in China - also an important market for commodities - is not doing so well.
Shortly before midday on Friday the All-share index, which traded for most of the day above 50 000, was only 0.05% higher than Thursday’s close at 49 896. The Top 40-index, which was above 44 000 on Thursday, was also 0.05% stronger at 43 746, within reach of that important resistance level of 43 600 which must be breached decisively for any run to be sustainable.
At that stage the Financial index was still firmly in the black and 0.84% higher, but the Industrial index was only 0.31% higher.
The Resources index lost 1.43% at that stage and the Gold index was 2.82% lower after the gold price dropped marginally.
It was announced on Friday morning that manufacturing activity in China last month contracted for the second consecutive month, according to preliminary survey findings.
The HSBC/Markit Flash Manufacturing Purchasing Managers' Index (PMI) hovered at 49.8 in January, little changed from December's 49.6 and just below the 50-point mark that separates growth from contraction on a monthly basis.
A Reuters poll had forecast a second month of contraction with a reading of 49.6.
The flash index is based on between 80% and 90% of the results of the survey, and released around a week in advance of the final figures, which can vary.
READ: China factory growth stalls
According to the survey results Chinese companies had to cut prices at a faster pace to win new business, adding to worries about growing deflationary pressures in the economy.
A Reuters poll had forecast a second month of contraction with a reading of 49.6.
South African resources stocks were also hit by a stronger rand, which traded within easy sight of the previous day's 7-week highs against the dollar on Friday.
READ: Rand hovers near 7-week high on ECB move
The capital injection in Europe could lead to some of that money being invested in South African bonds and shares, which is good for the currency. Government bonds strengthened and yields on the 2026 benchmark bond dropped to 7.255%, the lowest since late in May 2013 according to Reuters data.
A strong rand is however bad news for South African resources companies, which are paid in dollars for their exports.
Anglo American [JSE:AGL], which was comfortably above R200 on Thursday, dropped by 1.74% to R195.04.
BHP Billiton [JSE:BIL] dropped 1.4% to R247.96 despite a production report on Thursday indicating strong growth in production of iron ore, oil, petroleum and coal. This was not well received in the commodity markets, as any increase in production in an oversupplied market will depress prices further.
Anglo American Platinum [JSE:AMS] was one of the biggest losers on Friday morning after the company said on Friday that it expected its year headline earnings to fall between 40% and 55%, because of a five-month strike which hit its key South African operations last year.
READ: Strike to cause steep earnings drop - Amplats
The share price of the world's largest platinum producer dropped 3.42% after it said in a statement that it expected headline earnings per share to be between 250 cents and 335 cents.
