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Johannesburg - Comments on Friday from Federal Reserve chair Janet Yelllen pushed bond yields globally sharply higher on Monday, with a detrimental effect on share prices. On the JSE the dual-listed shares in the industrial sector followed their European counterparts lower.
Yellen said on Friday that the Fed may need to run a "high-pressure" economy to reverse damage from the global financial crisis that depressed output.
This was seen as an indication that the US central bank may prefer to keep an easy monetary policy stance for a long time, even if inflation exceeds its 2% target. This perception drove the 30-year bond yield to a four-month high of 2.565%. It last stood at 2.551%. Indications are that inflation in the US is rising.
Up until the end of last month, ultra low bond yields worldwide were one of the reasons for the strong run in global share prices, as yields were negative even in Germany and Japan.
The result of the turnaround in bond yields was that Asian shares were lower on Monday morning, followed by the European markets later on Monday. The dual-listed shares on the JSE, which represent most of its market capitalisation, tend to follow if European-listed stocks trade lower.
Yellen’s comments also pushed the dollar to a seven-month high, which means the rand traded 0.7% softer at R14.34 to the dollar, but for once the dual-listed shares which earn most of their income abroad in dollars did not show the expected response to the weaker rand.
By mid-morning on Monday the Industrial index was 0.84% softer, which also pulled the overall indices lower. The All-share index was 0.46% down at 50 909 points, while the Top 40 index lost 0.55% to 44 412 points.
The Resources and Gold indices lifted modestly due to higher precious metal prices. The Resources index was only 0.03% higher and the Gold index gained 0.31%.
The Financial index shed 0.28%, but the major banks showed moderate gains on news that South Africa’s four largest full-service banks continue to grow non-interest revenue aggressively, despite the weak economy.
Investors are awaiting a great deal of global economic data this week, including US industrial production on Monday; US and UK consumer prices and UK producer prices on Tuesday; and Chinese third-quarter gross domestic product on Wednesday.
The European Central Bank will hold its policy meeting on Thursday and Eurozone consumer confidence data for October is due on Friday.
Economists polled by Reuters expect the Chinese economy to have grown 6.7% in the third quarter from a year earlier, the same pace as the previous quarter, as increased government spending and a property boom offset stubbornly weak exports.
Analysts are however increasingly worried that China's growth is becoming too reliant on government spending, ballooning debt levels and a housing market showing signs of overheating. The Chinese economy is the biggest market for South African commodities and the growth figure will be closely followed by local investors.
At Monday's level of 32 051 points, the Resources index was about 29% higher than the 24 850 points on January 3, but it hardly moved over the past 90 days and gained only 0.03%.
Glencore [JSE:GLN] was 1.30% higher at R40.41, just one cent below its all-time high. The share price gained 14.4% over the past 30 days, 27.6% over the past 90 days and 99.9% for the year to date.
South32 [JSE:S32], which is 50.8% higher over the past 90 days, gained 1.49% on Monday morning to trade at the previous all-time high of R27.20. This stock is now 129.06% higher for the year to date.
BHP Billiton [JSE:BIL] lost ground on Monday and traded 0.53% lower at R208.73, but Anglo American [JSE:AGL] was 0.22% stronger at R175.55.
Banking shares were only moderately higher with Standard Bank [JSE:SBK] gaining 0.37% to R137.00, FirstRand [JSE:FSR] 0.39% to R44.16 and Barclays Africa [JSE:BGA] 0.18% to R146.55.
PriceWaterhouseCoopers reported in its latest analysis of South African banks that the fee income from retail/personal banking units increased from just under R38bn in the 2010 financial year to over R53bn in 2015. This translates to growth of 41%, while total customers increased by 9%.
In the industrial sector Naspers [JSE:NPN] lost 1.11% to R2 269.60 and Richemont [JSE:CFR] traded 0.84% softer at R99.05. Remgro [JSE:REM], which lost almost 15% of its value over the past 30 days, at mid-morning was unchanged at R219.01. Steinhoff [JSE:SHF] was however 0.28% higher at R74.82 and Sasol [JSE:SOL] gained 1.04% to R399.18.
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