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JSE lacklustre as market awaits rating outcome

Johannesburg - Local financial markets received a boost when International Monetary Fund (IMF) chief Christine Lagarde urged the US Federal Reserve on Thursday afternoon not to raise interest rates in the US before the first half of next year.

The JSE was trying to edge upwards in reaction to the news on Friday morning but by midday was barely in the black.
Most indices opened higher on Friday morning, but then lost momentum and were just slightly higher by midday as other uncertainties - such as Fitch’s upcoming assessment of South Africa’s credit rating and the problems in Greece - seemed to gain the upper hand.

By midday on Friday the All-share index gained only 0.07% to 51 359 points, and the Top 40-index was 0.40% stronger at 45 433 points. The gains were made possible by the Resources index which was 0.89% higher and the Industrial index which gained 0.03%. The oversold Financial index was another 0.39% down.

Fears that a strong performance by the US economy will soon lead to higher interest rates, which will divert money from emerging markets with high yields back to the US where the risk is perceived to be lower, are regarded as the main reason for the recent sharp drop in share prices.

Analysts said the weak rand, which is currently at an 11-week low against the dollar even though the greenback is under some pressure, is proof that such an outflow has already started.

Lagarde realises this danger for emerging markets, and said that any early rise in US interest rates is actually going to destabilise economies beyond US borders.

Analysts said Lagarde’s comments are a big discussion point in the markets, although no one is quite sure how to interpret this.

According to her, the US economy is not as strong as some like to think and there is no reason for US interest rates to rise now. The IMF’s analysis shows that there is no real upward pressure on inflation.

But there are still other uncertainties influencing the market and that is probably why the JSE’s response to Lagarde’s comments was so modest. The market is waiting to hear what the credit rating agency Fitch thinks of the state of the South African economy. This assessment is expected later on Friday.

In some circles there are fears that Fitch will downgrade South Africa’s credit rating even further, but the governor of the South African Reserve Bank, Lesetja Kganyago, was quite upbeat about the assessment on Thursday.

Kganyago said in a speech at the World Economic Forum on Africa in Cape Town that South Africa’s credit outlook is better than a year ago after the National Treasury addressed concerns about the budget raised by rating companies.

“Rating companies raised issues around the current account deficit,” he said. “The current account deficit has come down. We are financing it comfortably.”

The situation in Greece is also not resolved as the country delayed a key debt payment to the IMF due on Friday as the Greek government demanded changes to tough terms from international creditors for aid to stave off default.

The IMF said Athens plans to bundle four payments due in June into a single €1.6bn lump sum which is now due on June 30.

The price movements on the JSE of the big double-listed shares popular with overseas investors were a mixed bag on Friday.

Naspers [JSE:NPN] recovered some of the losses of the previous days and traded 1.29% higher at R1 798.92. SABMiller [JSE:SAB] was 0.93% lower at R639.51 and Richemont [JSE:CFR] was 0.50% weaker at R105.11. These shares all opened higher but lost steam towards midday.

Sasol [JSE:SOL] was remarkable resilient despite the price of Brent crude oil dropping as low as $61 per barrel. By midday the stock was 0.22% softer at R418.50.

Aspen [JSE:APN] also recovered some of the losses of the past week and gained 1.70% to R356.14. The share is however still 6.28% lower over the past seven days.

In the resources sector the two biggest shares, BHP Billiton [JSE:BIL] and Anglo American [JSE:AGL], were both higher. BHP Billiton gained 0.72% to R252.99 and Anglo American 1.78% to R193.72.

  
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Rand - Dollar
18.94
-0.0%
Rand - Pound
23.90
+0.0%
Rand - Euro
20.41
+0.1%
Rand - Aus dollar
12.33
+0.1%
Rand - Yen
0.13
-0.0%
Platinum
908.05
+1.2%
Palladium
1,014.94
+1.3%
Gold
2,232.75
-0.0%
Silver
24.95
-0.1%
Brent Crude
87.00
+1.8%
Top 40
68,346
0.0%
All Share
74,536
0.0%
Resource 10
57,251
0.0%
Industrial 25
103,936
0.0%
Financial 15
16,502
0.0%
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