Rand, JSE hit by recovery jitters
Johannesburg - South African markets fell more than 1.5% on Thursday as investors dumped high risk assets in favour of the dollar on worries that the global economic recovery may be stalling.
The rand registered its biggest daily fall to the dollar since May 23 and was in the bottom three of the worst performers among emerging currencies tracked by Reuters.
The resource-heavy local bourse was hammered after a bleak economic outlook from the US Federal Reserve weighed on bullion prices.
The local index of gold miners dropped more than 3%, closing at its lowest level in almost a year. The index is down more than 14%.
Harmony Gold, South Africa’s third-largest gold miner, fell nearly 6% to R83.29, its biggest one-day decline in more than two years.
“We came down after last night’s statements by Ben Bernanke, which also had an effect on China’s markets,” a trader at Johannesburg-based BOE said.
“The main losers of the day were the resource-based stocks, hit by the sharp decline in the oil price and general growth concerns (which) led to a lot of downgrading in growth forecasts.”
The JSE Top-40 index of blue chips declined by 1.6% while the All-Share [JSE:J203] index shed 1.5%.
Spot gold sank as low as $1 514.60 an ounce from $1 548.76 at Wednesday’s close, while ICE Brent crude oil for August delivery is down $5.6 to $107.78 a barrel.
Following the bleak U.S. outlook from the Fed, European Central Bank President Jean-Claude Trichet said on Thursday the warning lights were flashing red on the eurozone’s debt crisis.
“This all affected sentiment and revived fears of a global market slowdown. The sharp fall in the oil price today also had an effect,” the BOE trader said.
Rand, gold, euro fall hard
The negative sentiment also saw the rand hit one week lows of R6.8875/$, and bonds also mirrored those losses. Dealers said the Reserve Bank was also in the market in the past two sessions after the rand hit two-week highs at R6.70/$ on Wednesday.
In early evening trade, it was at R6.86/$, 1.3% weaker than Wednesday’s New York close of R6.7750/$.
“The current risk aversion and general market sentiment has not been kind to the rand,” said IFR Markets, a Thomson Reuters news and analysis service. Stop losses were triggered when the rand pierced support at R6.85/$, which is also its 100-day moving average. The next support level for the rand is 6.88, and is likely to attract exporters selling dollars if hit in the next few days.
Yields rose across the curve, with the 2015 bond yield up two basis points to 7.49% and that on the 2026 note up 5.5 basis points to 8.615%.
Oil prices plunged, global stocks tumbled and the euro shed more than 1% after the dismal economic news, including an unexpected announcement that strategic oil reserves will be tapped, sent a chill through markets.
European shares declined further and and government debt prices on both sides of the Atlantic extended gains after US initial claims for state unemployment benefits climbed more than expected last week.
Gold fell by almost 2% and was set for its biggest daily fall in over a month. The euro hit an all-time low against the Swiss franc as anxiety about Greece and a slowing U. economy damped investors’ risk appetite and encouraged a bid for safety.
The rise in initial jobless claims indicated little improvement in the US labor market, while slower private sector activity this month in China and Europe underscored a global slowdown.
The International Energy Agency said it will release 60 million barrels of oil from strategic government stockpiles in a bid to push down crude prices and underpin the global economy.. The announcement exacerbated fears about growth.
“Oil is selling off on the news of the reserve release, but the main problem here is the economic slowdown,” said James Dailey, portfolio manager of TEAM Asset Strategy Funds in Harrisburg.
“The stock market has come to a realisation that the slowdown is worse than expected, that we are not just in a soft patch but a long-term slowdown.”
Brent crude futures for August fell $6.46 to $107.77 a barrel. US crude fell $4.48 to $90.93.
World stocks as measured by MSCI’s all-country world stock index were down 2%, pushing the index into negative territory for the year.
The Dow Jones industrial average was down 1.72%, Standard & Poor’s 500 Index down 1.62% and the Nasdaq Composite Index down 1.21%.
Comments by Greek opposition leader Antonis Samaras, who said the only way for Greece to repay its debt was for the government to change its current fiscal policies, added to investors’ skittishness to take on risk.
Some analysts said the comments suggested Greece’s parliament could reject austerity measures that are scheduled for a vote next week.
Capping the bleak outlook was the downward revision on Wednesday by the Federal Reserve to its US economic growth forecasts.
Remarks by Fed Chairman Ben Bernanke, who said some headwinds facing the economy could be a lingering drag, added to the gloom.
The euro fell 1.4% to $1.4127, its lowest level in nearly a week, and it also hit a fresh record low at 1.1847, falling 1.6%.