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Johannesburg - The dollar took another huge knock, helping to ease the risk aversion that hampered world markets over the previous few days. Share prices on the JSE were also higher on Thursday morning, with commodity shares benefiting the most from the softer dollar.
The dollar traded at its lowest level in 17 months against the strong yen on Thursday, after minutes of the latest US Federal Reserve meeting confirmed that the US central bank will remain cautious for some time about raising interest rates. Against a basket of currencies, the dollar was near the lowest since October last year.
A softer dollar helped the oil price recover to above $40 on Thursday and gave commodity prices and resources a boost, with the JSE a major beneficiary. Wall Street and the European markets were also higher, although Asian markets were under some pressure because of the devastating effect of the rampant yen on Japanese exports.
By mid-morning on Thursday the Resources index on the JSE was already 2.64% higher, with some of the strong runners of recent weeks - like ArcelorMittal [JSE:ACL], Kumba [JSE:KIO] and Anglo American [JSE:AGL] - all gaining about 5%. The Gold index was 1.15% stronger.
The All-share index was at that stage 0.61% higher at 51 496 points and the Top 40 index traded 0.68% up at 45 393 points. The Industrial index gained 0.41% but the Financial index gave up 0.44%.
Less risk aversion also lifted the battered rand and the currency traded at R15.14 to the dollar at mid-morning.
The improved risk attitude was all due to the Fed minutes, which showed many members are reluctant to hike interest rates further in the face of global uncertainty. Elliot Clarke, an economist at Westpac, told Reuters that while the Fed remains happy with progress being made domestically, the bank is far less certain about the state of the world economy and its potential impact on the US and the dollar.
"Until such time as confidence in global prospects increases, they are comfortable to hold fire," said Clarke.
The drop in the dollar also added to gains in oil, which jumped 5% overnight as US inventories unexpectedly fell and investors gauged the possibility of an output freeze. Brent crude traded at $40.14, a strong turnaround from a one-month low of $37.27 hit on Tuesday.
ArcelorMittal, which increased from R2.90 on December 17 to R10.20 on March 6, gained a massive 6.08% on Thursday morning to trade at R7.85 before profit taking started. The World Trade Organisation announced this week that South Africa is considering imposing emergency tariffs on some iron and steel imports, because a surge in import volumes had caused the industry “serious injury”.
Although the share dropped more than 20% from its high in the beginning of March, it still gained 23.3% over the past 90 days.
Kumba rallied 5.04% to R85.50 on Thursday morning and is now 71.1% higher over the past 30 days. The share was also the victim of some profit-taking after it rallied from R25.35 on January 17 to R110.95 on March 6.
At mid-morning Anglo American was 3.45% stronger at R112.59, but the share earlier traded as high as R116.00, almost 7% higher. Anglo also made a strong run from only R53.30 on January 19 to R131.28 on March 6, before profit-taking started. Before Thursday’s trade the share price was 22.69% higher over the past 90 days.
BHP Billiton [JSE:BIL], which is still more than 15% softer over the past 90 days, gained only 1.58% to R157.80.
Sasol [JSE:SOL] benefited from the higher oil price and was 3.87% higher at R426.89. The company has weathered the low oil price quite well and is only 0.99% lower over the past three months, during which the oil price dropped as low as $27 per barrel, as its profits were hedged by the softer rand.
Richemont [JSE:CFR], which before Thursday’s trade was already 8.28% lower over the past 90 days due to concerns about the Chinese economy, lost another 1.58% to R94.88.
Two of the major shares on the JSE, Naspers [JSE:NPN] and British American Tobacco (BAT) [JSE:BTI], both traded higher. Naspers gained 1.12% to R2 098.15 and BAT was 0.71% stronger at R885.51.
