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Cape Town - World markets are losing some of the momentum it has built up over the past few weeks and the JSE was no exception on Wednesday morning.
The market’s weaker performance is attributed to various factors, including disappointing US trade data, the stronger oil price and new tensions about the situation in Greece, although some analysts think the real reason is that the markets has run out of steam.
There is a growing realization that the strong markets are mainly due to additional liquidity provided by economic stimulus packages from the major economies, and that it is not sustainable on the long term. As a result investors are also getting more nervous about the possibility that US interest rates can rise at some stage this year.
The strong performance of the JSE is also mainly attributed to foreign investors using cheap money to seek higher yields in emerging markets.
By midday on Wednesday the All-Share index on the JSE was 0.99% lower on 54 034 points while the Top 40-index traded 0.90% weaker on 47 877 points. The All-Share index is now about 2% lower than the all time high of 55 188 which was reached on the 26th of April this year.
All the major indices were down, with the resources index losing 1.57%, the financial index 1.39% and the industrial index 0.65%. At that stage the gold index was already 3.55% softer.
The decline in world markets started on Tuesday afternoon on Wall Street when the market reacted negatively to the news that the US trade deficit surged 40% in March. Most of the Asian markets followed Wall Street lower this morning and the European markets also opened lower, before it recovered somewhat.
The US trade gap was $51.4bn in March, jumping from a slightly upwardly revised $35.9bn in February, the Commerce Department said on Tuesday.
The increase reflected the impact of the strong dollar on US exports and a surge in imports after the West Coast port strike ended in late February.
Briefing.com analyst Patrick O'Hare said the weak trade data will take the estimate for first-quarter gross domestic product lower, perhaps into negative territory.
Analysts however think that the Federal Reserve did not regard growth figures as an important factor in the determination of interest rates, as it is constantly revised. Therefore much attention will be focussed on Friday’s important labour report.
Earlier this week the JSE’s momentum was provided by a resurgence in the resources index, but the technical analysts of Imara SP Reid have warned in their daily Market Snapshot that this recovery was not necessarily sustainable.
The analysts said that a combination of short term technical factors and a slightly weaker US currency encouraged the improvement in resources shares.
Investors were also discounting the possibility that a slightly more accommodative stance by the Chinese central bank will increase the demand for commodities, but there is no signs of an outright improvement in the demand for commodities.
“Therefore the sustainability of the run in resources shares remains a question,” the daily briefing said.
The morning’s declines is also the result of profit taking as the resources index gained more than 4% over the previous two sessions.
Anglo American [JSE:AGL] dropped 1.03% on Wednesday morning to R211.79 and BHP Billiton [JSE:BIL] was 0.77% lower on R293.0. The industrial index was a mixed bag with Naspers [JSE:NPN] losing 1.75% to R1 819.00, but SABmiller [JSE:SAB] gained 0.37% to R630.01. Richemont [JSE:CFR] was only 0.08% lower on R107.41.
Standard Bank [JSE:SBK] and FirstRand [JSE:FSR], the two high flyers in the financial sector, were both down. FirstRand lost 2.27% to R55.08 and Standard Bank was 1.14% down on R172.01.
